Baroness Morris of Bolton: My Lords, at the end of this month, the London School of Economics is running a conference entitled "Children: oversurveyed, underprotected". Does the Minister agree that the Government run the risk of relying too much on costly information systems in which the public have lost all faith, and that our children run the risk of becoming the most watched and recorded of all our citizens?

Lord Ahmed: My Lords, I thank my noble friend for that reply. Is she aware that despite calls from the Respect party and Anjem Choudhury, the former spokesman for Omar Bakri and Abu Hamza, not to co-operate with the police, the great majority of British Muslims will co-operate with them as good British citizens? Does she agree that, while the police have a difficult job, they must maintain the highest professional standards, earn the trust of British Muslims and build genuine partnerships with them?

Lord King of Bridgwater: My Lords, the House welcomes the robust statement that the Minister has made of the need for full support of the police and the intelligence agencies in the very difficult challenges that they face. I also welcome the statement made by the noble Lord, Lord Ahmed, about the attitude of the vast majority of the responsible Muslim population. Will the Minister ensure that people understand that, while extra funding for the agencies is a welcome contribution now, it is not a question of turning on a tap and it will take come considerable time for the benefits to emerge in the form of improved intelligence? During that period, mistakes may be made and therefore there needs to be understanding on both sides, along with some sensitivity. When the police have no alternative but to act, they must think carefully about the methods by which they do so as well.

Lord Brennan: My Lords, the remarkable statistical analysis which the noble Lord, Lord Brooke, has just given us of the functioning of London as a financial centre amply justifies his conclusion that it is a critical part of our national and economic life.
	It is trite to say that Britain is a trading nation, but because it is we are eternally adaptable. The past 40 or 50 years have resulted in adaptation in the field of financial services that has taken us to the leading position just described. It is therefore entirely appropriate for this issue once again to occupy our attention, and the noble Lord is to be commended for the debate.
	I propose to examine briefly those characteristics of the London financial world which attract business to it, and to consider how we can best advance the interests of London internationally as against domestic issues and regulations.
	I extract four issues from the City of London's analysis of the matters that give it its competitive advantage: first, its regulatory environment; secondly, its access to international financial markets; thirdly, its availability of a business infrastructure; and, lastly, a fair and just business environment. Within those four, we find the inevitable tension between some required measure of regulation and an appropriate amount of flexibility to allow the market to develop.
	I propose to examine whether internationally those aspects of our competitiveness are being reasonably protected and can be better advanced. First, on the European Union, the majority of the countries of Europe have no significant financial markets of the like of London. We are talking about London, Frankfurt, perhaps Paris, and one or two others. It is extremely important that in our dealings with Europe, especially the enlarged Europe, we do not allow our national interest to be subjected to a one-size-fits-all approach that accommodates smaller countries and smaller markets, which inevitably in those countries will give rise to a governmental desire to protect them in European negotiations.
	I would like to review recent events with that caution in mind. First, there is the financial services action plan. I have three preliminary considerations for your Lordships. First, it was a major regulatory programme, with 39 of the 42 issues eventually dealt with; and for that we must say that it was a reasonable effort in bureaucratic efficiency. There are two problems arising from that point. First, there is the cost benefit. I am told by those in the field that fully implementing all of those 39 issues would cost hundreds of millions of euros across the European market. What is the cost benefit of such an exercise? In particular, if we in this country are to consider implementation in full measure, what is the cost benefit to us? The second consideration on the FSAP is that it was not sufficiently directed at users as against the people in the market themselves. I am concerned that we should not regard this plan as being the end of European analysis of what we need in the financial markets. It was a means of progressing matters over a period of years and, thus far, it is enough.
	I want to make three points about European legislation. I congratulate Commissioner McCreevy on telling us that if he finds that legislation in Europe is not working, he will seek to amend it or withdraw it. If he does that, it will be a remarkable achievement. Secondly, in Britain we would be against—as would most of Europe—a single, high-profile, Brussels-based regulator. That would produce delay, compromise and inadequate sensitivity to our market in particular. So we want the minimum legislation in Europe. The future with regard to the FSAP, which as I said has reached its adequate end point at the moment, is that there will be a review by 2009 and there are no present plans for a second such plan. The Commission's White Paper on the plan, generally speaking, coincides with the Government's conclusion.
	I will conclude on Europe by proclaiming British pragmatism. We must not allow bureaucratic legislation to overtake our pragmatic market approach. The best that we should hope for are three things: common concepts generally accepted in the markets; the enforcement of fundamental principle; and supervisory co-operation. I find it difficult to understand what is meant by "supervisory convergence". Those three things will enable us to maintain our pragmatism and an appropriate level of flexibility.
	The second international issue I want to raise is that of London in the world markets. Although I have taken Europe first, those within Europe who look at the matter objectively must appreciate that London is not just our gateway to the world, it is theirs as well to a large extent. Regulation by Europe should never forget that important fact. I congratulate the authorities and planning agencies in London for what they are doing—we will probably hear later about London First—and the City of London in particular. The list of visits which the noble Lord read out from the present Lord Mayor is quite phenomenal; we should take from that the very important emphasis on China and Asia. We should be concentrating on those sectors of international business in terms of attracting investment, savings and funding.
	Secondly, I am particularly concerned that the Government give UK trade and investment not only support but push. For those of us who travel the world on business, there is a real concern about the level of connection between British business and the business sectors of the countries that we visit. Historically, the embassy—in particular the commercial attaché, the trade functionary—provided a bridge. In many countries, that is no longer the position. UK trade and investment exercise a separate function, Partnerships UK another. Is it efficient? It requires really careful analysis, in particular about the support that they should be giving to London around the world.
	The last issue concerns the role of the Government. I congratulate our Chancellor on one particular feature of his activity. Wherever he goes in the world, he pushes Britain's financial interests. He does so regularly in Washington and at G8 meetings and recently demanded open competition in Europe. That is extremely important. Support by the Chancellor and the Government will assist London to protect and advance its present position.
	On the future internationally, in the Budget in March the Chancellor announced a high-level group designed to examine and make proposals about the future of London as a financial centre. We eagerly await the group's results. It has a feature that I want to develop more generally. In the advancement of London as a financial centre around the world, it seems entirely appropriate most of the time that those like the noble Lord, Lord Levene, with the expertise to advance its interests, should at least advise UK Government negotiators and representatives and I see no reason why, on the appropriate occasion, they should not form part of a trade delegation on important questions. I think that that accords with the Chancellor's present view.
	My final proposal may appear academic at first sight, but it is not so intended. When the financial services action plan began and the Director General, Alexander Schaub, began its work, there was real concern in the City that Europe might finish up driving us rather than us leading them. That has been successfully avoided, but in the future there is a real need for London's financial sector to be seen always to be at the cutting edge. I invite those in the City to consider setting up a centre for financial standards and corporate governance based in London and directed towards our own country's requirements and those of Europe but, more particularly, towards the interests of international trade. It would have three functions: first, to review and monitor what is going on at the moment; secondly, to negotiate improvements with governments and regulators; and, thirdly, to examine any new legislative proposals. That would put us at the cutting edge.
	One statistic which struck me most about London as a financial centre was that it produces 1.4 million jobs. That is a phenomenal sector of our employment. Lastly, it contributes almost 5 per cent of surplus and net investment income to our gross domestic product. That demands that government and Parliament should give it regular support and encouragement.

Lord McNally: My Lords, it is always a great pleasure for me to follow the noble Lord, Lord Brooke, in any debate. We first got to know each other particularly well 25 years ago when we had to leave the platform at an NUS conference because of the hostility of our audience, and we had some time in the green room to get to know each other. It is worth reflecting that a large number of our hosts that day are now members of Her Majesty's Government.
	It is also a pleasure to anticipate the speech of my noble friend Lady Hamwee. She is a member of the Greater London Assembly, formerly a chair and now vice-chair of the Assembly, and has been termed by the London Evening Standard "the Mayor's watchdog"—a marriage made in heaven if ever there was one.
	I well realise that my own reputation is not that of a City slicker, so I should perhaps explain my intervention in the debate today. Up to 2004 and for the previous 11 years, I worked as the external public affairs adviser to the Policy and Resources Committee of the City of London Corporation. In those 11 years, I served 11 Lord Mayors—one of whom, the noble Lord, Lord Levene, will be speaking later—four town clerks, three policy and resources chairmen and two directors of public relations.
	I started the job in 1993 with two prejudices. My background was that of a former Member of Parliament for a north-west of England constituency. Like many MPs from north of the M25, I had the prejudice that London gobbled up a disproportionate amount of public investment. I remember that in those days in the other place I had a mantra about the money being spent on the M25, the Jubilee Line, Terminal 4 and the Channel Tunnel. It all seemed to be coming to London and it was unfair. It was an "us and them" attitude, which, I fear, has not entirely gone from the other end of this building.
	My second prejudice was about the City of London Corporation itself. I saw it as an anachronism of pantomime pomp and embedded privilege out of keeping with 20th century Britain. I hasten to say that that was in 1993 before I had experience of another body with a democratic deficit and a penchant for dressing up. But, by the time I finished my stint, I had changed my view on both counts. The City of London Corporation remains an anachronism but it is one that works. It is one of those British accidents of history that we find ourselves with a sector-specific local authority which has become a proper representative of the most important and dynamic sector of our economy. It has done so on the basis of being a very efficient local authority, a good neighbour to the other London boroughs and an effective focal point for lobbying on behalf of its stakeholders both in Whitehall and in Brussels, based on some very high quality research about London, which helps to make its case.
	As well as having respect for the corporation and its work, I have also changed my view about the relationship between London and the rest of the country. We will hear many facts and figures today from people with far more authority than me. I shall quote from one of those excellent research papers, to which I referred, produced by the City of London about wholesale financial services. It states:
	"London is the location for over two thirds of the EU's foreign exchange and derivative markets—markets in which the EU is world leader. It also has 42 per cent of the total EU share trading, including three quarters of EU share trading in foreign company listings. London leads the EU's hedge fund, pension fund and insurance fund markets".
	It also has over a quarter of the EU insurance premium market. These figures and the other statistics we will hear today mean that it is not by accident that London has become a genuine leader in a clutch of services which become ever more important than our globalised world economy. I recently heard the head of one of the leading international banks say:
	"When a company wants to do business in north America it may go to New York. When it wants to do business in Asia, it may go to Tokyo or Hong Kong. But if it wants to do business with the world it comes to London".
	Yet the facts are that London has created a pre-eminence in financial services which, as we have heard, underpins hundreds of thousands—if not millions—of jobs. That is why today's debate is so important. It is vital that we address the issues needed to maintain London's pre-eminence as a world financial centre as a matter not of London interest but of national interest. A prosperous and successful Britain needs a prosperous and successful London. And a prosperous and successful London needs a prosperous and successful financial services sector.
	To make that happen needs constant attention to a Rubik cube of issues by a variety of agencies. Government have to ensure a continuing balance between regulation and flexibility. We take to heart what the noble Lord, Lord Brennan, said about the need for pragmatism. We need regulation to protect probity, for a reputation that is lost is hard to regain, as some of the accountancy firms have found to their cost. But we need flexibility to encourage the entrepreneurship which has given the City global leadership.
	To take up the point made by the noble Lord, Lord Brennan, I welcome the establishment of a City of London office in Brussels, backed by a stakeholders' steering group. It is vital that London retains its role as Europe's financial capital. It is important that we remain at the heart of the decision-making to ensure that European regulation underpins rather than undermines London's strength.
	I mentioned the need for the right physical and social environment. I commend the report published by London First, Keeping the UK Competitive. I attended a very good briefing by London First earlier this week. I promise the noble Baroness, Lady Valentine, that I will not steal her speech. Indeed, I very much look forward to it. I was very impressed by the report's emphasis on the need for investment in transport and education, and I look forward to hearing the remarks of the noble Baroness.
	I also commend the initiatives taken in the City, often encouraged by the City of London Corporation, of companies offering mentoring and other educational support to make use of the talent on London's doorstep. I have some concerns, which I cannot go into today, but I am worried that the Olympics and their financing will turn into a blame game rather than getting it right and committing to success. Let us make no mistake, if the Olympics are a failure in terms of project delivery, that would bring damage and disaster of national proportions.
	I am worried that Crossrail continues to be supported in the most ambiguous way by government. There is a need for a realistic assessment of the kind of Crossrail project that can be delivered, and then some real commitment from the Treasury. My other concern is that the Treasury continues to play a game of poker with London about long-term projects, keeping its cards close to the chest and never actually revealing how much it is willing to give in real support.
	If we are going to accept London's case for light-touch regulation, an onus falls on the City itself. In its briefing, the British Bankers Association gave the warning that over-regulation would,
	"undermine the economy's future growth if the performance of the financial sector were to be hobbled by unduly onerous taxation and regulatory controls, if Britain's reputation for economic and financial stability were to be damaged in any way, or if the City of London were to lose its attractions relative to their potential international financial centres".
	But such a plea for freedom carries responsibilities. A sector that says that it needs vast amounts of public expenditure on transport and other infrastructure cannot avoid making a fair contribution through taxation. A sector that thrives on social stability and the attractions of a well-educated workforce cannot exist simply as an island of prosperity amid surrounding social deprivation. A sector that relies on a reputation for probity and security must play a full part in society's battles against common enemies of organised crime and terrorism.
	A couple of years ago there was criticism that the professions were not co-operating in the fight against money-laundering and organised crime as they could—and it would be interesting to hear an update from the Minister on that. At a personal level, the drug that destroys your son's or daughter's life, the terrorist bomb that kills your best friend or the world crisis that sends your pension fund into freefall might all have been aided and abetted by the ever-so-respectable accountant with whom you play golf or the lawyer whom you see every morning on the 7.45 to Cannon Street.
	The noble Lord, Lord Brennan, rightly emphasised that part of the City's strength is in the rule of law. The case for zero tolerance of corrupt and illegal practices extends beyond the personal; unless we are willing to tackle the corrupt and illegal practices in financial services, in our professions and trading practices, we will always be playing catch-up with the criminal and terrorist fraternities who co-operate with each other and know how to use all the benefits of globalisation to their own evil ends.
	"My word is my bond" used to be the motto of the City of London. It may no longer be fit for purpose in today's more complicated world, but London's reputation for probity and fair dealing, underpinned by a law that is respected and efficiently policed, is still our greatest asset and one that it is in the greatest interests of us all to sustain.

Baroness Valentine: My Lords, I am grateful to the noble Lord, Lord Brooke, for introducing this important debate. It could not be more timely or relevant and raises issues with which I deal daily in my role as chief executive of London First.
	The financial and business services sector is the most successful part of the UK economy. Forty per cent of the UK's export growth from 2000 to 2004 has come from London, and the majority of that from this sector. London is one of only three truly global financial centres, along with New York and Tokyo. The predicted European competition from Paris and Frankfurt has come to naught; London remains the top destination for European investment and the location of choice for European headquarters. But this competitive edge cannot be taken for granted; the Asian economies are strengthening at an impressive speed and the rest of Europe and America are not resting on their laurels, either. If the UK is to remain a global player, the competitiveness of the financial sector must be protected and promoted and some very real threats must be addressed.
	London can rise to meet these challenges, but only if we clearly understand what they are. Decisions must be based on sound and continuous dialogue between the financial institutions at the sharp end of wealth creation and the public decision makers who can ensure that London's competitive edge is sustained, nurtured and promoted.
	I shall therefore concentrate on why that dialogue is so important, and the issues it must deal with. These are of two kinds: those where we are in a strong position which we must safeguard, and those where we must do better. Our tax and regulatory regimes fall into the first category; they currently have the edge over our competitors, but we are walking a fine line. Any change to either regime endangers our competitiveness. Furthermore, tightened immigration laws could have an unintended impact on our ability to continue to attract the brightest and best from around the world.
	We must do better on transport infrastructure. The transport system is already overstretched and certainly cannot support the projected level of growth. Above all, we need an unequivocal commitment to build Crossrail as soon as possible—even now, we are looking at an earliest date of 2016—not just as a transport project, but as an investment in increased productivity and the future success of the economy.
	Before dealing with these issues in more detail, however, I shall make the point that investment in London supports the prosperity of the entire UK, and draw attention to London's undoubted strengths. It used to be said that what was good for General Motors was good for the US. It is now true that what is good for London is good for the UK. London's contribution to the rest of the UK is substantial on many fronts. It makes a net contribution to UK public finances. Recent estimates put this contribution at up to £18 billion in 2003–04. In addition, recent research undertaken by London First shows that London's relationship with the other regions of the UK is increasingly collaborative. Its businesses bring an income from the rest of the world, which generates demand and supports jobs in the rest of the country. It attracts younger people and develops their skills, some of whom move away in their thirties and forties, taking their skills and spending power with them.
	There are some obvious reasons why London attracts these individuals and companies. First, it is perfectly located in terms of geography and time zone. English remains the language of business. Secondly, London has a large, diverse and highly skilled workforce. This talent pool is not only specialised, it is also familiar with many business cultures and languages. London has been voted the best European city for access to qualified staff for the past 15 years. Thirdly, London also has an array of world-class support services, such as advertising, market research, accountancy, law and world-class universities. Finally, our regulation of global investors is, on the whole, well developed and balanced. The Financial Services Authority is a highly recognised brand, perceived as an international benchmark. The openness of the FSA and its willingness to engage constructively with industry practitioners has been a key factor in its success to date.
	However, we cannot take any of these advantages for granted. The world is changing and we must anticipate and meet the challenges. The financial services in London have themselves changed dramatically in the past two decades. Financial institutions no longer reside only in the square mile. Canary Wharf has become the location for a thriving financial community, and hedge fund, private equity and corporate finance firms inhabit the West End. Global investment banks have replaced UK institutions, meaning that those deciding on future investment in the London office may no longer reside locally. The governance structures that surround these institutions have also changed; the FSA and the Greater London Authority, to name but two.
	In essence, the "old-school ties" that bound the members of the financial community to the Bank of England and the Treasury, are no more. As the first-ever female executive at Barings, you might imagine I would be rather pleased to witness the demise of the old boys' network, but there are some elements of this relationship which are an unfortunate loss.
	An effective dialogue between the financial community and, in particular, the Treasury is essential. The creation of the Chancellor's task force is a positive step, but the remit of that group should go beyond promotion and also look at what the UK Government can do to improve the product. Going forward, there need to be new ways for the financial community to talk to the public sector about on-going competitiveness. Conversations need to include the City of London, the Greater London Authority and, indeed, local government representatives. Given the immediacy of the threat presented by the emerging Asian economies, this dialogue needs to be speedy and proactive.
	From my discussions with members of the financial community, I am well aware of the main concerns that would emerge from the business side in that debate. As I have mentioned, the UK is seen as broadly competitive in terms of its regulatory and tax regimes, but this competitive edge is fragile. According to Cushman & Wakefield's European Cities Monitor, London's ranking, in terms of the climate that the Government create for business, has slipped from second to sixth place in the past three years. Business is increasingly footloose, and companies will quickly migrate to more favourable regimes, as can be seen by the speed with which financial institutions have chosen to outsource significant aspects of their business to India in recent years—and that by no means involves just low-skill jobs.
	While we remain broadly competitive with the rest of Europe on taxation, the gap with the euro-zone is closing. In 1993, the tax burden as a percentage of GDP was 8 per cent lower than Europe, whereas by last year that advantage had fallen to 3 per cent. This reduced competitive advantage makes the kind of proactive dialogue I referred to earlier more vital. I shall give two examples: while some might argue that retrospective tax is retrospectively fair, it also disproportionately reduces business trust in government. Secondly, foreign domicile tax likewise may look attractive to a Chancellor looking for new sources of revenue, but risks a greater, unintended impact. On regulation, while we appear to be winning out to the US at present because of Sarbanes-Oxley, we should remember that we are simultaneously introducing the well intended Company Law Reform Bill, which might also have unforeseen consequences.
	The relative ease of immigration has made it possible to import key skills, as well as to attract global headquarters. We must be vigilant that the current débâcle at the Home Office causing tightening up of immigration practices does not have an unfortunate impact on the flexibility of leading firms to attract those with the best financial skills from anywhere in the world.
	These issues can be addressed through appropriate regulation and legislation, but the biggest threat to London's competitiveness is its overcrowded transport system, which needs straight-forward investment. London's population is set to grow by some 700,000 in the next decade, with around half a million more jobs. The transport system is already overstretched and certainly cannot support these projected levels of growth. By 2011, all the main Tube arteries will technically be overcrowded. Some of us might say that they are already. There is only one genuine solution to this problem and that, as I have already stated, is Crossrail. It will provide 40 per cent of the extra transport capacity that is needed in the next decade. It will link Heathrow to all the key financial centres from the West End through the square mile to Canary Wharf and is a must if London is to sustain and build on its position as the leading global financial centre.
	By promoting the Crossrail Bill, the Government are now taking the project forward as quickly as possible. But we need a commitment to funding of the order of £1 billion a year in the three years covered by the Government's upcoming spending review before we can have confidence that this project is really going to happen within the necessary timescale. It would be criminal for the Government to risk the success of the most productive and global part of the economy, indeed the success of the whole UK economy, for the sake of this vital scheme.
	To conclude, London's position as a global financial centre is facing fierce international competition. This is only to be expected, but it must also be anticipated, and we need to take urgent action. First, we must reinvigorate a frank and positive discussion between government and business. That dialogue must ensure that our tax, regulatory and immigration regimes continue to support rather than frustrate this sector. Secondly, we must establish where London is doing poorly and work out how to "fix it". The Chancellor's task force should focus on action, the best evidence of which would be active sponsorship of the Crossrail project. The Government need to take bold, long-term investment decisions, and make the necessary commitments now. To risk the competitiveness of this sector is to risk not only the ongoing success of London but of the UK economy as a whole.

Lord Christopher: My Lords, when I had been in this House for a few weeks friends would ask, "What is it like in the House of Lords?" I did not want to tell too much of the truth, but I said that I understand that when you drown your whole past life flashes in front of you. This is one of those occasions when part of it flashes because the noble Lord, Lord Brooke, and I had a period when we were—I would like to say working together—as now, sitting across a room, but happily on this occasion we are on the same side. I warmly congratulate him on the debate and particularly on his contribution which we will all want to read and study later on.
	I must also declare a modest interest. I am the chairman of TU Fund Managers Limited. Its history is not without relevance to this debate. It was founded in 1961 because the trade union movement did not trust the City an inch. It needed a long spoon and TU Fund Managers became that spoon. It also did not entirely trust itself because it made sure that it was owned by a charitable trust, so that no one could walk away with what we were able to produce. It has developed well. Its investors include members of the trade unions as well as Members of your Lordships' House—I certainly will not name them—and of the one down the road. It has been supported over the years.
	There is no question about the importance of the City of London. I need not dwell on that. I am concerned that this is not widely understood. Indeed, British people are pretty ignorant about money, the management of money and what happens to it; and credit cards have made it worse. The children of one lady who works for me decided they wanted to go to Disney Land. She said: "How shall we pay?" and the youngest said: "Well, mummy use your card in the wall like you usually do." That was her limited understanding of it, which at her age was all right. But there is a need for widespread education and co-operation between government and educational institutions to ensure that more is understood.
	My anxiety is that the sheer success of the City in prevailing in future circumstances may lead to some complacency. That must be guarded against. We are seeing a huge shift in economic power around the word—Russia, India, where over the past 15 years its share of world output has gone up by 40 per cent, Brazil and China, where over the same period its share of world output has gone up 250 per cent. Goldman Sachs estimates that by 2020 China's GDP will be the same as the United States, and that by 2050 it will be ahead of the United States. By 2050 India will be the world's third largest economy and Brazil and Russia will equate with Japan. That is not a situation that we can ignore and we must take regular steps to prepare for it.
	What will be the world's stock exchange system over that period? How and to what end will it evolve? Today we see the prenuptials of a possible marriage between the New York Stock Exchange and Euronext. The Borsa Italiano, the Italian stock market, could well make a ménage a trois. Where will that lead us all and what do we expect to be the outcome? That will have tied up the main exchanges of Paris, Brussels, Amsterdam, Lisbon and I think one of our minor markets as well. Where will it leave London, the Deutsche Bank and NASDAQ? I feel for Mrs Clara Furse, the chief executive of the LSE. She has played very hard to get over recent months—and would-be brides have lost good grooms this way before. Has she got it right? What should she do? President Chirac, typically, says that it should all be France and Germany, although the fact that Euronext is Dutch is perhaps a detail. But what are in the long-term interests in this area? Who is offering any advice or thought? It is allegedly not a political issue—that is probably correct—but those who will be deciding these things should be aware, I suggest, of what certain courses of action would or could mean for the UK and for Europe. It is not just economics. As the noble Lord, Lord Brooke, and others have said, it is about regulation—and heaven forbid that we have the Sarbanes-Oxley regulations here.
	Climate change was referred to, but not as I expected in the context in which I saw it. What will be the import of climate change for insurance and all the markets related to insurance? Will there be uninsurable risks? Will there still be people, as the noble Lord, Lord Brooke, said, who will insure anything?
	I sense a real need for a period of embracing a wide range of considerations with a view perhaps to seeing—the noble Lord, Lord Brooke, mentioned a whole list of interesting reports that are available—whether some sort of business plan for the City over the next 20 to 25 years could be developed.
	I turn now to some current issues that call for attention. The noble Baroness, Lady Valentine, touched on some of the points. This relates to the United Kingdom tax regime and its impact on location decisions in funds management. While the UK has established itself as a premier global financial centre in Europe, if not the world, this has not been so in the fund management industry. Core asset management functions—research, portfolio management and so on—are well established in the UK, but as a domicile for funds we are losing out to Dublin and Luxembourg. In large measure this is down to unintended consequences of the tax rules.
	A report by economic consultants Oxera, commissioned by the Investment Management Association, looked at these issues in detail and concluded:
	"The UK has already missed out on a considerable proportion of the market for investment funds. Even if the management of the funds remains located onshore, the development of offshore centres has employment and revenue consequences for the UK. Luxembourg and, in particular, Dublin have seen substantial growth in activities associated with the support and servicing of funds, and have developed as 'centres of excellence' in these activities. Offshore fund domicile is therefore a matter that deserves close attention by the UK authorities".
	That has manifested itself in a significant growth in both those countries as domiciles for funds at the expense of the UK. In 1994 Luxembourg managed €256 billion and in 2004 €1,106 billion, which is a growth of 332 per cent; in 1994 the UK managed €174 billion and in 2004 it was €486, which is a growth of 179 per cent; but Dublin, which in 1994 had only €13 billion, rose in 2004 to €434 billion, which is a growth of 3,238 per cent. We cannot ignore statistics of this nature. It is well documented that the UK has a number of tax provisions which have unnecessary, adverse and unintended consequences for both the industry and, I suggest, for the Government.
	I shall mention one or two of these. The charging of SDRT, which is a stamp duty on fund units, is alleged to have caused some £13 billion of exchange traded funds to locate in Dublin, even where they are linked to UK indices. There is the charging of withholding tax on distributions by money market funds, even though the underlying instruments pay gross, which is alleged to have caused $250 billion of UK-managed institutional money market funds to locate in Dublin and Luxembourg. There is the definition of trading activities, which has made it impossible to locate hedge funds onshore. The basis for charging corporation tax on UK-domiciled funds of funds has made it inefficient for UK funds of funds to invest in offshore funds and has effectively prevented offshore funds being marketed to UK investors, despite the existence of the UCITS passport under the European directive.
	There is the charging of VAT on fund management fees, which is alleged to have made it more efficient for a UK-based asset manager to manage an offshore fund than to manage one in the UK. I believe that there is likely to be some change to that before long. The delay in the follow through of the Pension Fund Pooling Vehicle has resulted in that important new product area to domicile in Luxembourg and Ireland. Lastly, uncertainty in the bases for charging corporation tax on UK funds is alleged to make it difficult to make long-term product development decisions.
	I want to comfort my noble friend by saying that I do not expect him to answer those points today—unless he can say, "We are going to put them all right tomorrow", in which case I will congratulate him very warmly. However, I hope that I have got across that the City is doing marvellously. But we must not rest on our laurels; we must ensure that both the Government and the City move forward so that, 25 years from now, when most of us will be gone, we will not have seen a huge move away to places such as China, India or, indeed, New York.

Lord Hodgson of Astley Abbotts: My Lords, we are indeed fortunate to be holding this important debate today and I add my thanks to those that have already been given to my noble friend Lord Brooke of Sutton Mandeville. Before I go any further, I should declare a number of interests, all of which are on the register, but I especially draw the attention of the House to the fact that I am chairman of two entities regulated by the Financial Services Authority.
	Like other noble Lords, I note the rich success of London stretching back over many years and surviving a number of quite extraordinary upheavals to the country: two world wars, the end of empire and, more recently, the emasculation of our country's manufacturing base. One may compare and contrast that with the two main rivals to London: New York, backed by the fantastic resources of that huge country, and Japan, whose manufacturing operations have had fantastic success since the Second World War. That serves only to underline the significance of the City's scale of achievement. The fact that it has been able not only to survive those upheavals but to strengthen and grow despite them owes much to its ability to react quickly and confidently to change.
	However, as the noble Lord, Lord Christopher, has just warned us, complacency is omnipresent and we must not take our past successes for granted. I return straight away to the question of regulation. The growth in the volume of regulation is frequently remarked on in your Lordships' House, and the City has not been spared from that trend. That gives us cause for concern, because it is light-touch regulation that allows free market forces to flourish and has presided over some of the greatest growths in the City. To illustrate that, I cite an article written by John Plender written 20 years ago in volume 63 of the journal, International Affairs. He wrote:
	"The aspirations of British financiers to play a grandiose role on the international stage have certainly met with more success than the similar aspirations of British politicians to play a bigger role than Britain's economic strength could support. Yet the reason for that post-imperial Indian summer reflects the fact that the United States chose, until recently, not to take advantage of its own economic strength to promote American financial institutions in the international sphere.
	Instead, successive American administrations introduced regulations and restrictions whose effect was to drive US depositors and borrowers off shore. Dollars emigrated to London, where exchange controls did not prevent banks from doing non-sterling business. So thanks to this action by the United States, the City, which had lost its sterling empire, gained a dollar empire".
	That was 20 years ago. More recently, during the past few years, the City has been the beneficiary of the rush to judgment by US legislators that led to the Sarbanes-Oxley regulations referred to by my noble friend Lord Brooke in his opening remarks, which have given London a further competitive advantage. That heavy-handedness by US Administrations must be a warning to us. Contrast the decision by Cecil Parkinson, when Secretary of State for Trade and Industry in 1983, to require the City to abandon fixed minimum commissions, which is an example of the deregulation and free-market economics that have opened the way for the City to prosper.
	Initially, the present Labour Government seemed ready to take a surprisingly practical and common-sense approach. I applaud their decision to establish the Monetary Policy Committee of the Bank of England and give it responsibility for the detailed setting of interest rates. I wish that my party had done that. However, more recently, while the Government remain very keen to talk the deregulatory talk, they seem less ready to take the appropriate deregulatory action.
	One illustration of the increase in regulation is the increasing burden of and on the Financial Services Authority. A short chronology of the FSA from its creation in 1997 shows an exponential increase in its workload and remit. By June 1998, it had assumed responsibility for banking supervision. In May 2000, it took over the role of the UK listing authority from the London Stock Exchange. In June 2000, it took over the responsibilities of the Building and Friendly Societies Commission, as well as the responsibility to prevent market abuse. In October 2004, it took on responsibility for mortgage regulation and, finally, in January 2005, it took on the regulation of general insurance business.
	There is undoubtedly a benefit of there being only one regulator to oversee the financial services industry, but that rapid growth has led to criticism that the FSA is now overstretched and that some of its regulatory practices are inappropriate. Inter alia, that growth is reflected in the size of its budget. In 1999–2000, its budget was £158 million. In 2002–03, it reached £180 million. In 2006–07, it will be £276 million. There is not just the cost of funding the Financial Services Authority. There is also the internal cost for firms of complying with its regulations—men and women who have to work in compliance departments of financial service businesses. Many suggest that that is probably three times or more the cost of the external funding of the FSA. If that is right, and many academic commentators suggest that it is, we are now costing a short billion pounds a year through regulation by the Financial Services Authority. We need to keep an eye on that. We need to ensure that we are getting value for money from it.
	A parallel concern is that the FSA is seen as being very closely linked to the Government and therefore vulnerable to what can best be described as political nudges. The Government are in danger of failing to distinguish risk from fraud. Risk that goes wrong is not necessarily fraud. It is vital that that distinction is maintained. We must not fall into the habit of tending to punish people who take risks. That is at the heart of our worries about codifying directors' duties that formed part of our debates on the Company Law Reform Bill. Risk-taking is the bedrock of great business success. If it is stifled, the competitiveness of London as a financial centre will quickly follow suit.
	An example of the Government's trend towards criminalisation is to be found in the Company Law Reform Bill, which has just left your Lordships' House. As a result of the takeover directive issued by the European Union, the Bill introduces a statutory framework for the Takeover Panel. A major part of that is uncontroversial, but there are areas where the Government have decided to go further than the requirements of the directive. For example, they have introduced a criminal offence for failure to comply with the panel's rules about bid documentation. This is quite unnecessary gold-plating; no other European Government have thought it necessary to provide a criminal offence in order for them to comply with exactly the same directive. Further, the Government have radically enlarged information gateways for the panel—information gateways are the requirement to collaborate with other bodies by passing information to them. As a result of this, the Takeover Panel may find itself acting as a proxy arm of a series of other government bodies.
	In case noble Lords think I am exaggerating, I refer them to the Company Law Reform Bill, with which the Minister and I have a passing acquaintance. Schedule 2 lists the bodies with which the Takeover Panel must collaborate. It runs to six pages. Paragraph 34, of a total of 73, says that the Takeover Panel must pass information required under the Fair Trading Act, the Consumer Credit Act, the Estate Agents Act, two competition Acts, the Enterprise Act, the Control of Misleading Advertisements Regulations, and the Unfair Terms in Consumer Contracts Regulations. That is just one list in 73 paragraphs. In the debates on the subject, the noble Lord, Lord Sainsbury of Turville, and the Attorney-General, the noble and learned Lord, Lord Goldsmith, could not give us convincing arguments for criminalisation, and failed to see the damaging effect of such a trend.
	The past success of the panel—it has been a huge success—has been its ability to engage the trust and respect of the City for its absolute independence, its absolute integrity and its absolute confidentiality. Aside from this creep towards criminalisation, the Government have also failed to implement a number of fiscal measures that would greatly increase the productivity of the City and encourage more people worldwide to use London as a basis for their businesses. Here I again follow the noble Lord, Lord Christopher, by talking about the failure to abolish stamp duty on shares. I quote now from a paper published by the Institute for Fiscal Studies, entitled, Stamp duty on shares and its effect on share prices, by Steve Bona in June 2004:
	"Stamp duty is thus shown to depress share prices, particularly for firms whose shares are frequently traded. This may increase the cost of capital faced by firms, which in turn could have negative repercussions on investment. Stamp duty also distorts the signals that share prices send about the profitability of firms, as share prices are also affected by expectations of future turnover volumes and stamp duty rates. Our results show that these effects are real and measurable".
	It is almost unbelievable that the City of London is the only one of the world's three major financial centres with a stamp duty on shares. Yet despite the weight of evidence against retaining it, the Government have persisted with a short-sighted viewpoint that is committed to hanging on to this out-dated tax. In his powerful speech at the second City of London biennial meeting on 13 December 2001, entitled, "The Increasing Impact of Stamp Duty on the UK Economy", Don Cruickshank, the then chairman of the London Stock Exchange, laid out the reason why reform is needed in this area, and the range of institutions backing such a change. It is a shame that the Chancellor has not yet found the time to listen to the argument. Alas, I fear he will not be prepared to do so, as he has often been deaf to reasoned arguments and instead preferred government by sound bite.
	I invite the House to consider the sorry saga of the on-again, off-again operating and financial review that has dogged this Government since their gold-plating first glinted in the Westminster sun. All in all, after a promising start, the Government are showing dangerous signs of reverting to their old Labour command-and-control roots. If so, they will endanger the future of the City of London. At best, this Government's report card on the City reads, "could do better".

Baroness Hamwee: My Lords, I, too, thank the noble Lord, Lord Brooke, whose championing of London has been well known over many years. He and others have declared quite detailed interests. My main interest to declare is that of being a Londoner, albeit an adopted one, and, as my noble friend has said, a member of the London Assembly, which does not mean that I speak for the Mayor. I was surprised to receive the briefing that other noble Lords received yesterday, and even more surprised to find that it was very much in accord with the notes that I had just written. It would have saved me a little time had I had it a few minutes beforehand.
	Others have focused on the precise terms of the debate—the importance of London as a world financial centre. I found that I simply took that as a given. I also take as a given the fact that London contributes to the UK as a whole, so that its success is crucial to the UK's success. One of London's exports to the rest of the UK is funds. I am aware that this is not a universal view and that there is a good deal of jealousy outside London of our success—a feeling that Government and the media are far too London-centric, and that we whinge on in a way in which we should not. I think that speeches today have made it abundantly clear that the reasons for being so concerned to preserve and support London's success are very well founded.
	I shall make three obvious points—sometimes one wants to state the obvious—which are interlinked. The first is that London in this context is more than the City as defined by the square mile, Docklands and the West End. It is the whole of our capital city. Secondly, we need always to be alert to what makes London successful now and in the future, given what other cities and other nations offer. Thirdly, the people who will ensure London's success are attracted not only by the business climate but by the quality of life here. London does attract people. It is a growing city, and it needs to accommodate that growth. You do not add a population equivalent to, say, Leeds over a very few years without knowing how you will do that, but that is a debate in itself.
	There is a big outflow from London annually, mainly of older people, but there is an even greater inflow, of whom the largest component is international. We are a relatively young city, and we are an increasingly diverse one. Our links around the world must be an advantage. The noble Lord, Lord Christopher, talked about the growth of India and China. The latter is particularly astonishing, and those emerging markets, in my view and clearly in that of other noble Lords, are to be befriended. London can be part of that growth.
	Our financial services—as narrowly defined by banking, commodities, trading and so on—are not the only area projected to offer employment to a great degree. Indeed, they are a relatively small area of growth. Business services will grow more than any other sector. London's economic consultants, accountants, lawyers, advertising agents—which I think the noble Baroness, Lady Valentine, mentioned—and even public administrators will have a lot to contribute. I make that point because China, for example, needs to create an efficient public enterprise and a modern financial system. Our relationship with the emerging markets must mix rivalry and friendship. The current Lord Mayor has a staggering record of travelling; I was aware of his enthusiasm for China before he became Lord Mayor. He is also developing relationships, and rightly so. We must look to supporting business services in the widest sense. In this context, "ancillary" is not a derogatory term. Those services are not only available in the City; London is polycentric. Business services are often delivered from inner and outer London as well as from central London—on a directly international basis and to support domestic activities which in their turn have international links. There are many aspects of this, including encouraging innovation. Our universities may not quite be a unique selling point but they are certainly close to it. Increasing skills levels generally to ensure that we have local skilled personnel is hugely important. As a community, we need to "up-skill".
	If, as the chief executive of a major company, you are looking at where to locate, you will also want to look at what employees want, and quality of life is high up the list. As a city, if we are to retain people who may be free to move and to attract those who might go elsewhere, that is an important factor. In, I think, 1991, I spoke at a conference about London's role as a world city and was given some slides for illustration. I got to the bit about the pomp and ceremony of London just when the slides came into action with a jerk and a judder. Unfortunately, the first slide to accompany my comments on ceremony was a dust-cart. But I guess that those services are important too.
	I would never underestimate factors such as our cultural life, leisure activities and retailing. But, as has been said so powerfully, transport very obviously can make the difference between London being a liveable city on a day-to-day basis and it being scarcely tolerable. Looking at London as a polycentric city, orbital and local transport is important, but I knew that I would not be the first person to mention Crossrail. It has had quite a lot of coverage this week, but, on reading it in detail, it amounted really to only another launch. It will not be the Minister's fault if he can give us no news, but the Government must not only take forward the Bill but also make Crossrail a reality. I worry very much not just about access to the City and the Docklands from outside London, but also access for housing, commercial products and so on, which so much depend on Crossrail.
	My noble friend Lord McNally rightly warned about the Olympic Games and Paralympic Games becoming "blame games". The Mayor of London has described the track as likely to be euphoria, as on 6 July 2005, followed by a long whinge, then a lot of enthusiasm. That is probably right, but we must reduce the whinging. The prize for doing well—not just the sporting prize—is very high. I am dismayed that it appears that the report from KPMG, having worked on the financing aspects of the games, is no longer to be published. It has done the work so it should be published. I believe very firmly that all sectors of government and the agencies involved need to be very transparent in what they are doing to make the games a success. I was astounded during the passage of the Olympics Bill to discover that the London Organising Committee of the Olympic Games is not to be subject to freedom of information legislation. If we are not open about how the games are to be funded and how the work is progressing, the worst will be assumed.
	There may be non-Londoners who say that London is greedy, the Government should not focus on it so much, and that it does not need the support that we all talk about, but if London's position as a world financial centre slips, the rest of the UK will soon notice. Its mix of activities and its being a place—I refer to all London—where people want to live and work help to ensure that position.

Lord Levene of Portsoken: My Lords, I am most grateful to the noble Lord, Lord Brooke, who served with such distinction in another place as the Member for the City of London, for having initiated this debate and for his very kind remarks today. I declare an interest as chairman of Lloyd's and the IFSL, the body which promotes the financial services industry internationally, and also as a serving alderman and past Lord Mayor of the City of London. Having been on both the receiving and transmitting ends of so many speeches concerning the dominant position of the City of London, I am well aware of the danger of bombarding one's audience with statistics. I will try to avoid that as much as possible, but I believe that a few numbers are necessary to illustrate the point.
	A number of your Lordships will be familiar with the history of Lloyd's and the very difficult times through which it has passed; difficult for both the society and its membership. Happily, Lloyd's has survived and is now restored to the pre-eminent position in the world's insurance industry and benefiting from the world's best known brand name in insurance. Collectively, the UK insurance market is the largest in Europe and the third largest in the world after the United States and Japan, but, if we ignore domestic business, the London insurance market is the world's largest international centre for insurance and reinsurance, with premia in the London market now exceeding £21 billion per annum, more than half of which is placed with Lloyd's. The London market insures 15 per cent of the world's marine market and nearly 30 per cent of its aviation market. At Lloyd's we insure many of the world's leading companies, including 86 per cent of the Dow, 89 per cent of the FTSE 100, two-thirds of the Fortune 500 Global Companies, 84 per cent of Europe's top 50 and all the world's top 20 banks.
	Insurance, however, involves a lot more than collecting vast sums in premia. It also, of course, involves making good the damage following disaster as an enabler and a rebuilder. Lloyd's suffered the largest losses of any market in the world as a result of the 9/11 atrocity and subsequently received fulsome praise from the US Treasury Secretary for "stepping up to the plate". Following last year's hurricanes Katrina, Rita and Wilma in the Gulf of Mexico, Lloyd's will pay out nearly £3.5 billion. The lack of discipline which meant that in the past such huge claims could come close to wiping out the market has now been corrected. Despite enormous claims in the gulf last year, Lloyd's suffered only a very small overall loss.
	We do not deal only in disasters. Around the world we cover many major projects, such as the huge construction project known as "the big dig" in Boston, in the United States, and the construction of the bridge linking the Peloponnese to mainland Greece; we cover liability insurance for the new Airbus A380 super jumbo; and we cover, of course, many sporting events and teams, such as Wimbledon, the Ryder Cup, the World Cup, the English and German football teams and the Olympic Games.
	The recent agreement by the Chinese authorities to grant a licence to Lloyd's to act as a reinsurer in China, a decision for which we owe a considerable debt of gratitude to our Prime Minister for all his help, will enable Lloyd's to bring its 500-year experience to what is fast becoming one of the most important economies in the world. We are now beginning to benefit from the work carried out in Brussels for the creation of a single market in financial services. This is a long, difficult and complex task, but we are finally beginning to see the benefits of it. In this respect I thank in particular the EU Commissioner for the Internal Market and Services, Charlie McCreevy, who since his appointment has done a great deal to help us.
	Lloyd's largest market in the world is the United States of America, where our business now amounts to some $10 billion every year. But surprisingly, and unhappily, in the field of reinsurance in the United States, Lloyd's is the largest victim of totally unjustified and discriminatory treatment. It is not what we expect from our largest trading partner and a country with which we have been doing business at Lloyd's for more than 200 years, and where earlier this year we marked the centennial of the San Francisco earthquake, after which Lloyd's played such an important and crucial role in the subsequent rebuilding of that city.
	Like so many other markets, we thrive on competition, which we believe is both good and healthy. But that competition must take place on an even playing field, and more must be done in the UK to compete with offshore centres, whose regulatory and tax regimes appear to the outsider to be more welcoming. We applaud the recent announcement by the FSA of a reduction in approval times for new insurance and reinsurance start-ups, but we are disadvantaged by the disparity in tax regimes, whereby we have to compete with offshore centres in which the rate of taxation is as low as zero. We much welcome the recent statement by the Chancellor on the importance he attaches to the financial services industry and hope that this will be matched by every effort being made to maintain London's ability to compete most effectively.
	We have an enormous advantage in London by virtue of our language and our geography. English is now the internationally accepted lingua franca for business from Beijing to Buenos Aires. Our geographical position enables us to trade with the Far East in the morning and with the United States in the afternoon. This is a huge advantage. It is recognised by the concentration of global financial services here in London, where they feel both welcome and comfortable. But we must do everything possible to maintain that position and to improve it, whether that be in our local infrastructure, where, as so many noble Lords have remarked today, we are still very badly let down in terms of transport, and, again, as so many have also said, where the go-ahead for Crossrail is not only overdue but absolutely essential. We must also ensure that those who speak in the name of London, not far from here on the other side of the river, recognise the value of our business relationships and do not engage in insulting comments about our most important customers.
	Nationally, more than 1 million people are employed in financial services, and additionally in central London more than 300,000 are involved in supporting services from the legal and accountancy professions. The £18 billion surplus on trade in financial services in 2004 was more than double that of any other nation.
	I mentioned earlier the Chancellor's recent initiative to establish a new City of London task force to promote financial services globally, and to be backed up by a new business advisory council. But it is disturbing to note from details published by UKTI that although they show correctly that the financial and legal sectors contribute by far the largest share of UK GDP, at nearly 9 per cent, by contrast UKTI allocates the very lowest share of its programme expenditure, at only just over 1 per cent. This cannot be right, and I hope that the Minister might indicate that there will be a substantial rebalancing of its efforts to match the importance of the industry.
	Happily, here we do not need to worry about the condition of the metatarsal of one individual; we are blessed with a huge number of extremely able people from many different nationalities who choose to work here in London. We need to support them all and to let them know that their outstanding contribution to the national economy will receive the highest possible level of support.

Viscount Trenchard: My Lords, I am grateful to my noble friend Lord Brooke of Sutton Mandeville for introducing this debate. My noble friend provided a wealth of statistics showing just how important the City of London is to the nation, not only to those who derive their livelihoods from it, but to all those whose savings and pensions are invested in or through it, and to the economy of the country as a whole through its major contribution to taxes.
	I should declare my interests as director-general of the European Fund and Asset Management Association, and as a director of certain investment companies as disclosed in the Register of Interests. I have worked in financial services for more than 30 years, including 23 years with Kleinwort Benson, now part of the Allianz Dresdner group, of which I spent half running the firm's operations in Japan. I have therefore seen the City not only from within, but also through Japanese eyes. I played a part in persuading many leading Japanese companies to list their shares on the London Stock Exchange, including Toshiba, Fujitsu, Honda and predecessor banks of both Mizuho and Tokyo Mitsubishi UFJ.
	The City has been consolidating its position as the world's leading financial centre. Today's Financial Times reports that London has extended its lead as the prime destination for foreign direct investment in Europe, enabling the UK to hold on to first position among European countries in spite of having inevitably lost market share to lower cost East European countries. However, we cannot take London's continued pre-eminence for granted. Its position may now be threatened on a number of fronts and it has become increasingly clear that the Government's ostensibly benevolent and supportive approach to the City is an illusion. After his early inspired decision to grant operational independence to the Bank of England and his first two years during which he had to stick to his promise to follow the spending plans laid down by the previous Conservative Government, the Chancellor has reverted to the old Labour formula of tax and spend. The Sunday Times reported last weekend that tax freedom day this year was 3 June, some four days later than the 2005 date, itself four days later than that in 2004.
	The most damaging decision taken by the Chancellor was to abolish the privileged tax status of pension funds and charities. This act, besides robbing pension funds of the value of the dividend tax credits just when they needed them most, resulted in a significant reduction in their weighting of UK equities as compared with other types of investment, leading to weaker stock market performance. The cumulative costs to pension funds of this exercise amounted to several hundred million pounds, and the large pension deficits that many companies now carry have started to act as a deterrent to mergers and acquisitions activity, affecting another of the City's major business lines.
	The City has not only geography and the English language to thank for its significant lead over its continental competitors. The accumulated skills and human capital, its relatively untarnished reputation for high standards and fair play, the fairly sensible regulatory regime that we have enjoyed for many years, and the competitive position as regards both personal and corporation tax that we have enjoyed from the early days of the government led by my noble friend Lady Thatcher until recently, have all played a major part in making the City pre-eminent among financial centres and keeping it there.
	However, as the noble Baroness, Lady Valentine, explained, our tax advantages have now been substantially eroded. Many more people pay higher rates of income tax while many of our competitors have slashed their rates of both income and corporation tax. The noble Lord, Lord Christopher, referred to Ireland's low corporation tax rate of around, I think, 15 per cent and its great success in the business of managing funds. Our taxation regime is immeasurably more complicated than it was when this Government took office and Britain now has the seventh highest rate of corporation tax among the 25 members of the European Union. Many British companies are considering moving their place of incorporation overseas to escape the Chancellor's increasingly aggressive attack on what used to be called sensible tax planning. For example, it was reported last weekend that Hiscox, a major Lloyd's insurer, has decided to move to Bermuda.
	It is not only in the field of taxation that we are in danger of losing our competitive position. There has been a massive increase in regulation, both national and European, over the past few years. The costs of compliance with this are high. Much of it is unduly burdensome and not justified by any cost benefit analysis.
	While the decision to merge the former nine financial regulators into one—the Financial Services Authority—was generally welcomed, the FSA has presided over a move away from our traditional principles-based, light-touch regulatory framework towards one that is unduly prescriptive. My noble friend Lord Hodgson referred to the massive increase in its budget.
	Sir Callum McCarthy, the chairman of the FSA, was a practitioner—and, for some years, a colleague of mine—before he became a regulator. He has the right experience on which to form his judgments on what regulation we need and what is unnecessary and harmful. His determination to be more rigorous about the costs and burdens that regulation places on firms is to be welcomed.
	The FSA says that it shares,
	"the Government's commitment to better regulation, regulating only where necessary, doing so in a way that is proportionate to risk, and reducing regulatory burdens and unnecessary bureaucracy where possible".
	The trouble is that the Government do not practise what they preach. It is much to be regretted that the Government refused to make the preservation of the competitiveness of financial markets one of the FSA's objectives under the Financial Services and Markets Act. Instead, the competitiveness of the City is protected only by the lesser status of a "principle" to which the FSA will have regard in pursuing its "more important" objectives.
	Increases in taxation and regulation are now combining to make the United Kingdom a less attractive place for foreign multinational companies to establish their European headquarters. The London Stock Exchange looks as if it has missed the boat in terms of exercising leadership in the consolidation of the world's major stock exchanges. The London Stock Exchange may be in danger of losing its attractiveness to major foreign companies. The Tokyo Mitsubishi UFJ Financial Group has announced it is cancelling its listing in London but that it will retain its listing in New York.
	I continue to believe that completion of the single market for financial services is in the interests of the City of London and both financial services firms and consumers throughout Europe. However, it is very important that scrutiny of European legislation by this House and by another place is improved. As the noble Lord, Lord Brennan, told your Lordships, there has been a massive increase in financial legislation emanating from Brussels, much of it unduly prescriptive. The single market will work for all if it is in London's image and builds on its success and its ethos of "My word is my bond".
	But our financial markets are not European markets, they are global markets. We must ensure that London remains fit to play its pre-eminent role as one of the only two real world financial centres. Unworkable European legislation, such as the savings tax directive, has caused artificial distortions in the market and has reduced consumer protection by accelerating the transfer of investments away from regulated products. Large investment flows have also taken place to new financial centres such as Dubai and Singapore. MiFID—the Markets in Financial Instruments Directive—also represents a considerable additional compliance burden for financial companies even though a great deal of what it contains is already required by other legislation, albeit in slightly different form.
	London has a long tradition of welcoming foreign traders and has always maintained an open trading culture. In that sense, it perhaps has more in common with New York than with Tokyo, Frankfurt or Paris. These three are essentially domestic markets to which foreigners are granted access and in which they may participate, whereas a large part of business conducted in London and New York consists of foreigners trading with foreigners.
	Increasing European employment legislation and the UK's adoption of the Social Chapter represents a threat to London. The beneficiaries of this will not be the other European centres, where the situation is worse, but new centres such as Dubai, Singapore and Shanghai.
	The Government must pay more attention to preserving the special position and huge success that London enjoys. We had a trade surplus in financial services of more than £16 billion in 2005 and the City accounts for some 5.5 per cent of GDP and employs 1.4 million people. Regulation must be principles-based wherever possible; it must ensure a level playing field between different sectors; it must be no heavier than is necessary; and it must be justified by a cost benefit analysis.
	Unfortunately, the burgeoning tentacles of the state and the increase in the proportion of GDP accounted for by the public sector mean that we are bound to have to pay higher taxes for some time than we would have done if this Government had protected their golden legacy. However, we must ensure that our taxation rates, both personal and corporate, are as attractive as possible and compare well with those of our competitors. Tax must be simplified and stamp duty should be abolished as soon as practicable. Proper savings incentives should be introduced and the beneficial tax status of pension funds and charities should be restored. The Government should do at least some of these things—and quickly—if they are to succeed in giving even a semblance of credibility to their claim to be a friend of the City.

Lord Marshall of Knightsbridge: My Lords, I, too, am grateful to the noble Lord, Lord Brooke of Sutton Mandeville, for the opportunity to participate in this important and timely debate. I do so principally against the background of my role as chairman of the CBI's International Advisory Board and also as chairman of Nomura International, which has had its European headquarters in London for some 42 years. It ensures that I am also an approved person of the FSA, a status which I believe is enjoyed by certain of our previous speakers. I also speak for this country's visitor economy—the tourism industry—as the chairman of VisitBritain.
	I shall endeavour not to be too repetitive, but I am afraid some element of that is inevitable. The importance of London as a—I would prefer to say "the"—world financial centre and the need to remove impediments to its continued growth and competitiveness has already been stressed in forceful and eloquent terms. The CBI has long put forward such views. A definitive review published just under two years ago was titled UK financial services: a global player that needs championing". 
	We have already heard many statistics but, significantly, financial services here act as a spur to the wider economy, lending at the time of the CBI review around £200 billion to UK businesses and processing some 6 billion transactions a year. The factors which combine to make London one of the world's leading financial centres include our history of openness, our historic trading culture, the economies of scale resulting from concentration of firms in one key location, our central position between North America and Asia, an adequate business infrastructure, a largely enterprise-based economy, the English language and a flexible workforce, including the availability in London of people who are fluent in almost every other language on earth.
	The international competitive nature of UK financial services has provided distinct advantages in an increasingly globalised market place. However, there is no case for resting on laurels. We need to be vigilant if we are to hold on to London's pre-eminence at a time when world financial markets are changing in structure, regulation and reputation. Dubai is setting out its stall as a financial centre for Arab wealth and, very recently, Saudi Arabia announced plans to develop a major financial centre in Riyadh. We therefore need to act speedily and effectively on key issues which have already been outlined by previous speakers. We need to act especially on transport—I mention once again Crossrail—and on skills and training.
	One of the industry's problems that has emerged over the past few years is that of a somewhat tarnished image. The difficulties over endowments, pensions and split caps have lowered consumer confidence and trust in financial services. The added public perception of excess profits, unrealistic levels of executive pay and obscure charging policies has created a burden of poor reputation.
	In these circumstances, it is perhaps understandable that the regulatory regime introduced in 1991 is geared heavily towards the expectations of the consumer, but too much regulation, weighted heavily in favour of consumer protection rather than encouraging competitive markets, stifles innovation and product development. Clearly, effective consumer protection is important, but the CBI believes that the promotion of competitive markets is ultimately the best way to serve consumer interest and offer customer choice.
	At first glance, the revised UK regulatory system appears to perform well, with London outperforming other key financial centres, yet, below the surface, there is increasing unrest over the mounting regulatory burden. Financial services companies have told the CBI of a rise in the level of regulatory interference, increased costs associated therewith and a regulatory process becoming more and more out of step with the needs of the industry. Although it has been mentioned previously, we must be mindful of what has happened in New York and the effect of the Sarbanes-Oxley legislation. It is deterring foreign companies from listing in the United States and raising the possibility, perhaps the probability, of listed companies delisting.
	Concerns here fall into two broad categories: first, the volume of legislation and bunching of new regulation over a short period, with short time scales for consultation and implementation; secondly, the manner in which the industry is regulated at both UK and European Union level. The financial services action plan, unveiled in 1999 and included as a priority at the following year's Lisbon summit, aimed to develop an integrated European financial market. As the noble Lord, Lord Brennan, noted, the plan identified 42 targets, including 26 directives, as being necessary to achieve its objective. Almost all of these proposals have been passed at EU level and must be implemented in member states. The focus has moved to common implementation and enforcement by creating networks of financial regulators and supervisors alongside development of a global dimension of the European Union financial market, particularly in respect of relations with the United States.
	At the end of last year, the European Commission published its White Paper on financial services policy, covering the period up to 2010. In response to the preceding Green Paper, the CBI emphasised a number of key policy elements, which are generally reflected in the White Paper. Needless to say, they focused on the avoidance of excessive, impractical and regressive regulation. The CBI recognises firmly the need for a robust regulatory environment, but it calls for a moratorium on new measures. The priority is the need for consolidation and the proper enforcement of existing regulation. The CBI has proposed that government establish a special working group—a panel of wise men and women—comprising experts from all parts of the financial services sector to consult on any new UK or EU legislative proposals and their implementation. The idea is to ensure that government are fully aware of the implications for London's world-class industry and the wider economy of any proposed legislation. I shall take this opportunity to retable this proposal.
	Taxation is of course enormously important to business and the financial services sector. At the CBI, we are concerned at the growing practice of introducing tax policy changes under the anti-avoidance banner. The introduction of complex changes to tax law without prior consultation creates uncertainty and instability. This serves to undermine perceptions of London's and the UK's competitiveness and reputation as an international business location.
	Clearly, London as a global financial centre has a profound impact on the national economy at virtually every level of commerce and industry. Not least is the visitor economy, which is now worth an annual £74 billion to this country, with expected substantial growth up to and beyond the 2012 Olympics. London is the jewel in our tourism crown, and the financial sector plays a significant part in making this so. The funding available from successful financial services clusters for environmental improvements creates an attractive visitor and working location. Examples are the river path in the City and Jubilee Park in Canary Wharf. The heritage and elegance of the City, juxtaposed with the spectacular new developments such as the Swiss Re Tower and the stunning modernity of the Canary Wharf complex, give London a sense of dynamism, of constant evolution and of being a timeless city to enjoy.
	Britain, and London in particular, is still too often seen overseas, particularly in the new developing markets, as a dour and foggy place, locked in the novels of Dickens and Conan Doyle. When events such as the London Marathon pass through the financial districts of Canary Wharf and the City, this outdated impression is instantly dispelled by television broadcasts throughout the world.
	Let us not forget the support for exhibitions and cultural events that is provided by finance houses as part of their corporate social responsibility programmes. This benefits the visitor economy by improving galleries, museums and London's overall cultural catalogue. Directly, the financial sector brings in more than 2 million visitors a year through conventions, fairs, exhibitions, business visits and meetings.
	Much more than meets the eye depends on maintaining London's position as a pre-eminent world financial centre. It is a global player that needs and deserves championing.

Lord De Mauley: My Lords, I welcome the opportunity presented by my noble friend Lord Brooke of Sutton Mandeville to take part in this debate on such an important subject. I start by declaring an interest, first as a fellow of the Institute of Chartered Accountants in England and Wales, and secondly as a former director of a leading London merchant bank in the early 1990s. I suppose many of us should also, and I do, declare interests one way or another as holders of shares traded on the London stock markets, as holders of pension schemes managed in the City of London, as insurers against risks and as depending for a great many other business activities on the spending power of those who work in the financial services sector in London.
	If further proof is needed after what other noble Lords have said, particularly my noble friend Lord Brooke, I shall attempt to demonstrate why London is at least a leading—possibly the leading—financial centre in the world. Here I give credit to some research carried out by Lombard Street Associates for the British Bankers' Association.
	The United Kingdom has the largest trade surplus in financial services of any country in the world. In 2003, according to a recent a survey, it was $25.3 billion, with Switzerland in second place on $11 billion—less than half ours. The vast majority of Britain's financial services industry is based in London, so that surely puts London in contention for the title.
	In recent years the British financial services sector has grown consistently since 1991, unlike exports of goods, which have not grown since 2000. Indeed, financial services are growing at over twice the rate of the economy as a whole, and that growth is accelerating. The sector's productivity has risen at over three times the rate of the wider economy. The external assets of United Kingdom-resident banks have grown by 500 per cent since 1986, from £700 million to £4 billion. According to the Office for National Statistics, the gross value added of the financial intermediation sub-sector has grown by over 7,000 per cent since 1974. Perhaps I should say that gross value added is similar to GDP, except that it excludes indirect taxes and subsidies.
	A November 2005 survey of top international financial managers conducted by Z/Yen Ltd on behalf of the Corporation of London shows that London and New York lead the international field of financial centres on all key factors of competitiveness. Those factors included the availability of skilled people, the regulatory environment, access to international financial markets and to customers, business infrastructure, fairness, taxes, costs and the availability of office space.
	What are the advantages to Britain arising from London holding that position? The financial services sector accounts for almost 5.5 per cent of GDP and employs over 1 million people, who spend their money on goods and services provided by several million more shopkeepers, trades-people and skilled, semi-skilled and manual workers. Given the poor performance of the United Kingdom's exports of goods, the current account deficit has remained manageable only because of our overseas earnings on financial transactions. And of course the tax take on all this activity, in corporate and personal taxes, VAT, stamp duty, rates, council tax and myriad other taxes, adds up to a huge amount of revenue. In short, it is not too strong to say that London is vital to the economic survival of the United Kingdom.
	Why is London so successful in this arena? We are the beneficiaries of a trading culture developed in the 18th and 19th centuries. Britain, and London in particular, has a history of openness and a tradition of welcoming foreign traders. Our stock exchange and insurance markets are among the oldest and best respected in the world. The international prevalence of English as the language of business cannot do us any harm. In recent years our geographical position between the American continent and the Asian time zones has become more important, and an article in today's Daily Telegraph suggests that London's success is partly due to the fact that the United States and Japan have looked at Britain as a good stepping point for investment into Europe. The fact that interest rates are now set by the Bank of England independently of politicians has been positive.
	In the area of regulation, as the noble Baroness, Lady Valentine, said, a fine balancing act must be performed. Inadequate regulation would act as a severe disincentive to international financial businesses but, with too much regulation, bureaucracy would have a similar or worse effect. A common complaint from New York is that there are too many regulators demanding too many often contradictory things. Several noble Lords have referred to the horrors of Sarbanes-Oxley, a sledgehammer to crack a nut if ever there was one.
	It is helpful that in the FSA we have a single regulator. Its philosophy of publishing principles of regulation with a degree of discretion in interpretation is compared favourably with the more prescriptive system in the United States. The FSA's risk-based approach contributes to that favourable comparison. It is also worth mentioning that non-membership of the euro, according to the Treasury, has had absolutely no adverse effect on the City at all.
	So far, so good. But of course a successful history is no guarantee of a successful future, as the British textile industry has shown. There are threats to London's position. The article in today's Telegraph I mentioned indicates that France is fast catching us up as the top European destination for investment. New technology and an improved communications infrastructure have reduced the need to be close to financial markets, and companies are becoming better at managing their operations remotely. As other noble Lords have mentioned, London is an expensive city to operate from. The transport infrastructure is regularly criticised, and terrorism is seen as a significant threat. Uncertainty over the future ownership of our stock exchange cannot help.
	I made some relatively favourable comments on regulation earlier, but international financiers are worried about the lack of accountability of, and overburdensome regulation by, the FSA, and are watching carefully the huge amount of regulation that the Government, in their keenness to kowtow to the European Union, persist in burdening us with and gold-plating, for no obvious benefit. The enactment of the Consumer Credit Bill while Europe is independently pursuing a consumer credit directive does not seem from a distance to be the best example of co-ordination.
	The international financiers also worry about taxation. While, in the survey I mentioned, taxation comes about half way up the list of factors worrying those who make decisions about whether to do their business here, there is a fine line over which it would be unwise to step. Concerns have been exacerbated by worries about, for example, the effect on the Eurobond market of implementation of the savings tax directive, the unexpected and retrospective threat to tax trusts in the budget, increased City business rates, and hints at tinkering with corporation tax. My noble friend Lord Trenchard also mentioned the Chancellor's attack on pension funds.
	What of the future? While our growth in exports of goods to EU countries has broadly kept pace with international growth since the late 1980s, the country's share of exports to the rest of the world has dropped by over a third since this Government came to power. Our manufacturing industry is simply pointing in the wrong direction. By 2050, according to the WTO, China will be the largest economy in the world, with India not far behind. If we are to maintain our share of world exports, sales to Asia will need to grow strongly. Given the relative strengths of our positions in goods and in services, it is clear that a major role needs to be played by services, particularly financial services.
	I shall suggest where our financial businesses might target their efforts. The Asian economies are now in transition from a position where their imports previously focused on capital goods related to early-stage development, with the imperative of building roads, dams, steel mills and electricity generating plants, to one now where rising living standards are producing a growing middle class whose incomes are becoming sufficient to support a rapid growth in consumer markets. This growth will of necessity be associated with an increase in bank deposits, which, for example, in China are forecast to double over the next 10 years. Mortgages and consumer finance will therefore be a major growth area in countries such as China and India, where they are relatively undeveloped. They represent a profit engine for banks over the next five to 10 years, so there are huge opportunities for us there.
	Consumer credit is also growing in other Asian countries, notably Korea, where a British bank, Standard Chartered—I declare an interest as I worked for it for half a dozen years, including in Asia, in the mid-1990s—has recently bought a major Korean bank. The UK financial sector is well placed to take advantage of the huge opportunity to manage accumulations of Asian savings as they become available for investment around the world, as well as of securities trading and foreign exchange activities, as exchange controls are relaxed. The potential for the United Kingdom, and for London in particular, to take advantage of these opportunities is reinforced by our legacy in Hong Kong, India and Singapore. The developing countries with the most successful financial systems, corporate governance and stock markets almost all appreciate the benefits they have gained from British law, language and business practices.
	A key condition for the United Kingdom's competitive success in international markets in future years is therefore that the country should continue to enjoy a vigorous and profitable financial sector, unimpeded in its efforts by public policies. But if—I echo the quote from the British Bankers' Association mentioned by the noble Lord, Lord McNally—Government hobbles the financial sector by unduly onerous taxation or regulatory controls, if Britain's reputation for economic and financial stability is damaged in any way, or if London should lose its attractions relative to other potential international financial centres, the growth prospects of the entire country will be undermined. If the politics of jealousy are given their head through the imposition of further onerous taxation, I fear deeply that the goose that has laid golden eggs, and which is capable of laying even bigger ones, may be slain.

Lord Newby: My Lords, I too thank the noble Lord, Lord Brooke, for introducing this debate, which is important given the importance of the financial services sector to London and more widely.
	I strongly agree with the noble Baroness, Lady Valentine, that what is good for London is good for the country as a whole. I speak as someone who was brought up in Leeds. Today, a quarter of the employment in Leeds, and a quarter of the city's GDP, comes from financial and business services. A generation ago the bulk of the employment and wealth of that city was generated by manufacturing, which has nearly entirely collapsed. If it were not for financial services and other business services, the situation in Leeds, other regional cities and Edinburgh and Glasgow would be extremely serious. Much as I would like to think that it was the inherent attractiveness of Leeds as a place to do financial services business that has brought about this transformation, the truth is that Leeds has thrived on the back of London's success and growth as a global financial services partner. When we discuss whether London deserves investment compared to other parts of the country, the role of London as a locomotive for the rest of the country, particularly as regards financial services, needs to be very much borne in mind.
	I do not intend to repeat the many statistics on the size of the financial services sector that have been mentioned, but one of the important matters which has been mentioned, and which I wish to stress, is that this sector is not only very significant now but over recent years has shown that it is capable of growing. Despite all the concerns expressed, we can see potential for further growth. At a time when world markets of all kinds have grown rapidly, the fact that the UK's share of world exports of financial services rose in 1995-2002 from 16.6 per cent to 23.7 per cent is a major achievement. I am unsure whether any other significant sector of the economy can match that achievement.
	I do not intend to repeat what many other noble Lords have said about London as a place to do business, except to echo the comments of my noble friend Lady Hamwee, who talked about the strengths of London as a place to live, wherever you and your family might have come from originally. The international outlook of London and the fact that it is a world city is a huge advantage. I speak as someone who lives on the edge of the largest Portuguese community in London, where I see Portuguese flags flying on every second car. But, interestingly, possibly every fourth car flies one flag displaying the Cross of St George and one Portuguese flag. For a relatively new community to feel sufficiently integrated that it wishes to support two teams—not, I suspect, from fear of not wishing to be considered too partisan, or not necessarily simply wanting to hedge its bets—shows that people are made welcome. That is very important at all levels. While I do not wish to underestimate the many problems of managing a diverse society such as we have in London, or to suggest that there are no problems between different communities, London has been remarkably successful in integrating the most extraordinarily diverse group of individuals and communities probably ever assembled in the world.
	Concerns have been expressed, some of which I wish to echo under the headings that others have used: regulation, skills, congestion, and the role of Government. As regards regulation, as other noble Lords have said, the slogan of the City used to be, "My word is my bond". Unfortunately, that is no longer adequate because that precept was honoured all too often in the breach rather than the observance. We have regulation because some unscrupulous individuals in the City have brought it on themselves. When the horrors of Sarbanes-Oxley are mentioned, it is worth reminding ourselves that, so far as I am aware, it was not introduced by a radical Left-wing legislature but by one of the most business-friendly legislatures in the world in response to some highly criminal activity by members of the business community. That is why regulation is initiated. As many noble Lords have said, the FSA has grappled with a great multitude of tasks and deserves praise for trying to move from what started out as a hugely long rulebook towards a more principles-based approach, particularly in respect of wholesale financial services.
	Noble Lords have explained how, over its relatively short life, the FSA has had additional burdens placed on it, but the reason for that is that this place has been looking for a repository for necessary regulation. The FSA's reputation was such, even from the start, that people felt confident giving it additional roles to play, which explains why it costs more. It was slightly ironic, if I may say so, that even the noble Viscount, Lord Trenchard, suggested that the FSA should take on an additional duty to encourage the financial services sector. The FSA has fulfilled its task well.
	The other area of regulation which has been much mentioned is that of the EU. Some noble Lords commended Commissioner McCreevy for adopting the pragmatism of the noble Lord, Lord Brennan, in seeking, against the odds, not to regulate more but in some cases, we hope, to move towards a simplification of the regulatory regime.
	Some noble Lords talked about the need for the City to have the skills to respond to the growth opportunities that it faces. There seem to be two areas of concern here, and the first relates to internal skills and whether we as a nation are providing enough young people with the skills to go into the City. One of the great failures of London and the London economy is that, while we grow rapidly and our population increases rapidly, we have very high levels of unemployment almost literally within a stone's throw of the City. One of the major challenges for all those involved in managing London, at whatever level, must be to do more to integrate that population in east London, which is largely unemployed and has low educational attainment, but which has the potential to provide a significant, almost new source of employment in the City and across the rest of London. If we can achieve that, we will not need to attract as many workers from the rest of the world, so the pressure on all our services from an increased population may not be as great. I equally agree with a number of noble Lords who have said that we need to make sure that our Immigration Rules do not tighten so that we fail to attract the best and brightest. I know that the Government are trying to get the balance right, and I suspect that they are not very far off it on that front.
	The third area that has been much discussed is Crossrail and I, too, echo what noble Lords have said about the need to really get a move on on that. The problem is funding. In discussing this issue with senior colleagues from London from my own party, I have found a bit of a response of, "Well if the City wants it, it should jolly well pay for it". It seems to me, for reasons that I have given earlier, that Crossrail is not just a benefit match for the City; it is a benefit for the whole of London and for the UK as a whole. It is inconceivable that the Government will just put their hands in their pockets and fund the whole thing; I notice those on the Government Benches nodding. Therefore, we need to look at innovative ways of financing it. Equally, it is inconceivable that Crossrail will go ahead without the Government playing a major, significant part in it that goes beyond simply getting a Bill through this Parliament.
	Finally, I would like to raise the issue of the role of Government in promoting the City, which has been discussed. A number of us were pleased when the Chancellor in the Budget announced that he was setting up the high-level group, because it showed that he was taking the City and financial services seriously. We know that even more so now because Ed Balls has become the Minister responsible for the City, so the City can rest assured that its interests are being considered very seriously by the Chancellor. I understand that the high-level group has not yet met. When will it meet and how often? Will its minutes be published? How confident are the Government that they have the enhanced role for UKTI right in terms of financial services? As a number of noble Lords have mentioned, it is important that priorities are shifted and that senior staff promoting British business in UKTI and in embassies have a greater understanding of financial services and of those regulatory regimes that are relatively new to us in terms of financial services—China, India, Brazil and elsewhere. Can the Minister give us any indication of what changes are taking place to reflect an increased priority for financial services?
	The Government mentioned at the time of the Budget that they were going to produce a five-year strategy for a step change in the Government's drive to market the strengths of the UK economy. Why they have needed to wait almost 10 years to try to effect such a step change is an interesting question. When will such a strategy be published? As I said at the beginning, this is an important debate because this is an important sector. We debate the City infrequently in your Lordships' House, and I hope that it will not be too long before we do so again.

Baroness Noakes: My Lords, I join other noble Lords in congratulating my noble friend Lord Brooke of Sutton Mandeville on securing this important debate. It has been a good debate in the House of Lords tradition, with so many contributions from noble Lords who have a real understanding of the importance of London and the City of London as a world financial centre, and that has shone through all of the contributions today. Like the noble Lord, Lord Newby, I will not be repeating the statistics, which have been well covered by many speeches, starting with that of my noble friend Lord Brooke. In particular, I point to the speech made by the noble Baroness, Lady Valentine, which provided a very useful background.
	We need to see London against the backdrop of our economy generally. Our exports of traded goods have not been growing strongly and our share of world trade has been declining. We have a high dependence on sluggish European markets. We have compounded that by a lack of success in exporting to economies that have been achieving the most rapid growth, notably India and China. Our exports to Asian economies are lower now than they were 10 years ago. That rather negative position has been rescued by a relatively strong performance in service exports, and within that the financial services sector has consistently recorded a trade surplus, as several noble Lords have already pointed out today. To date, the Asian economies have not been a huge contributor to that, but as those economies mature, consumer markets will come to the fore and bank deposits and savings will start to accumulate. My noble friend Lord De Mauley explained the changes that will take place in those economies and the opportunities that will come from that. A key question is whether London can use its traditional strengths to win in those markets and thereby continue the success that is so important to the overall economic success of the UK.
	Fifteen years ago, the consensus was that there were three financial centres; London, New York and Tokyo. In the past 15 years, Tokyo has rather fallen by the wayside and now there are two, which demonstrates if nothing else that financial markets do not stand still. London must fight to keep its pre-eminence in Europe as well as compete against New York. London needs to look to the rapidly developing markets in Asia. Perhaps the biggest danger is the possibility that China will establish its own financial centre in a way that rivals New York and London. It is difficult to see China establishing a centre like London, which is characterised by the presence of foreign players dealing with each other, but we cannot rule that out. The best way to deal with that kind of threat is to preserve and enhance the competitiveness of London in that global market. We need to look carefully at the components of competitiveness to ensure that there are no obstacles in the way of London's continuing success.
	I know from today's debate that many noble Lords have seen the report commissioned by the Corporation of London last year on the competitive position of London as a global financial centre. We have been accustomed to believing that our language, culture and quality of life in London are key competitive factors, but those ranked only 11th and 12th in that report. Top of the list was the availability of skilled personnel. This is not just about education and training, as the Treasury's Financial services in London: Global opportunities and challenges paper implied. A fundamental feature, according to the Corporation of London's report, is the flexibility of the UK labour market. International investment banking, for example, can be a volatile business and needs to be able to downsize and upsize fairly rapidly without undue delay and cost in order to respond to market conditions. There have been concerns expressed by those that operate in London about the UK's drift towards greater labour market regulation, which is a consequence of our membership of the EU. That does not affect our competitiveness within Europe, but if we move too far, it could do undoubted harm to London's competitiveness as a global market centre in the future.
	The second competitiveness factor was the regulatory environment. As other noble Lords have said, we have a very definite lead at present over the US. Compared with New York, our regulatory system is far less fragmented. Of course, as several noble Lords have pointed out, we have to date avoided—and, indeed, gained competitive advantage from—the US's over-reaction to Enron and WorldCom, as enshrined in the Sarbanes-Oxley Act. That sounds like good news, but we must not be complacent about this if we are to retain a leading global position.
	Most of the regulation in the UK emanates from Europe. I agree very much with what the noble Lord, Lord Brennan, said on this subject. It is a constant struggle to keep the UK's principles and risk-based approach against the natural European instinct for rules. Indeed, the appetite in Europe for yet more rules was evident from the White Paper published last December on achieving an integrated financial services market.
	It is clear from all the studies that have been done that London is head and shoulders above its EU rivals as the leading financial centre in Europe, and that London in effect represents the interests of Europe on the global financial stage. But it is far from clear that the importance to the EU of London as a global player is appreciated, since so much of the agenda in Europe, such as the financial services action plan, has been inward looking. Paris and Frankfurt, to some extent, still dream of competing with London, and their countries drive the EU regulatory agenda with that very much in mind. But London has to compete globally and has very different needs.
	My noble friend Lord Blackwell argued last month in your Lordships' House that the time has come to debate whether the City of London would be better served if the UK opted for a free-trade relationship with the EU, particularly in relation to financial services. In that way, we could set our own regulatory rules, which would enhance rather than impair our competitive position. I share my noble friend's views that this merits a serious debate. But, accepting the status quo for today, I have some questions for the Minister.
	Will the Government be resolute in arguing for markets based on competition rather than ever-more elaborate regulation introduced under the banner of integration? Will they make sure that Europe understands the difference between retail and wholesale financial business, with the latter left largely outside consumer-based and activist regulation? Finally, will the Government say what steps they are taking to ensure that the EU focus is on making London great for Europe rather than eliminating differences within Europe?
	As a country, we cannot claim that we have always implemented European rules in a way that keeps the cost of regulation to a minimum. For example, the UK implemented the anti-money-laundering regulations with such zeal that costs are much higher in the UK than practically anywhere else. No one doubts the importance of reputation to London as a global financial centre, but the clear view of a study carried out last year was that the cost-benefit balance was completely wrong. My noble friend Lord Hodgson of Astley Abbotts today pointed out the way in which the Takeover Panel implementation has been dangerously gold-plated by the Government, to the possible detriment of London.
	The Financial Services Authority, which is in charge of most of the regulatory implementation that affects the City of London, talks a good story on being risk-based and principles-driven in its approach to regulation, but it is not yet clear that it walks the walk. It still has a rule book running to 8,000 pages. As my noble friend Lord Trenchard reminded us, it has no remit to pursue competition and competitiveness, so it is not surprising that it focuses all its energies on regulation. The noble Lord, Lord Newby, said that my noble friend Lord Trenchard was seeking to get the FSA to do more. I think he misunderstands the position: if the FSA were to have competition and competitiveness at its heart, it would do less. That is the whole point.
	I have not had time to talk about the importance of infrastructure to London, particularly the transport infrastructure. As we have heard, many in London believe that the construction of the Crossrail link is an essential improvement. As far as I can see, the Government continue to avoid the issues on this, as the noble Lord, Lord Newby, has said. I invite the Government to say when they will give a clear view on the financing of Crossrail; it is the uncertainty that is so damaging to all those who are looking to this improvement in London.
	I have not had time to talk about tax issues either. They were very well covered by the noble Lord, Lord Christopher, in his excellent speech, and several other noble Lords also picked up those points.
	As believers in markets and market-based solutions, we want London to thrive as it always has—through its own actions, abilities and competitive strengths. London does not need a lot of government intervention or initiatives, whether they emanate from Europe or not. I hope that when the Minister winds up, he will not disappoint us on that score.

Lord McKenzie of Luton: My Lords, I thank the noble Lord, Lord Brooke of Sutton Mandeville, for initiating this debate and for his very wide-ranging and impressive introduction. I also thank all noble Lords who have contributed today. As ever on these occasions, the debate has been very wide-ranging and it will be difficult to deal in 20 minutes with all the points that have been raised, but I will do my best.
	All noble Lords here today know the vital role that the financial sector plays in the modern British economy: financing business investment and expansion; providing a range of products that allows the general public to save and borrow; and allowing companies and individuals to insure against risks to their businesses, homes and other assets.
	The financial sector is central to this country's wider prosperity, generating an increasing share of the UK's economic wealth. Since 1997, it has grown at an average of more than 12 per cent a year—more than four times the average rate of growth for the whole economy. By 2004, the financial sector accounted for nearly 7 per cent of UK output—10 per cent if you include related business services such as accounting and legal services. The sector also supports more than 1 million UK jobs, a third of them in London. Indeed, employment in the financial sector has remained stable since the late 1980s, despite technological developments and off-shoring of activities. We will be sharing a whole range of statistics today, which is due in no small measure to the excellent research papers commissioned for the Corporation of London, to which the noble Lord, Lord McNally, referred.
	London is the world's leading international financial centre. Building on a rich tradition of international finance that began in the 17th century, London is a major net exporter of financial services and acts as a hub for financial institutions, leading the world in many areas of international activity.
	Ten years ago, the UK exported roughly five times the level of insurance services that it imported. By 2004, that multiple had increased to eight, with the value of UK insurance exports roughly doubling over the same period. The noble Lord, Lord Levene, spoke with authority about the role of the insurance sector in our economy and the impact on it of things such as natural disasters. He spoke about the US reinsurance regulatory framework, suggesting that it was unfair. I understand that, following recent discussions between the European Commission and the US authorities, a task force has been established by the US National Association of Insurance Commissioners. It is tasked with making proposals by December on alternatives to the current US framework, including the use of collateral, within the US and abroad.
	At the same time as these insurance developments have taken place, total external assets held by UK banks have more than doubled in value, turnover in the UK equity market has increased in value by 50 per cent, and the number of derivatives contracts traded on London exchanges has doubled, while the value of off-exchange derivatives trading has more than tripled.
	London now dominates key international markets such as Eurobonds, with 70 per cent of the global secondary bond market in London. Nearly a third of foreign exchange turnover takes place in the City. That is more than New York and Tokyo combined, and six times that of Frankfurt. London also accounts for more than 40 per cent of the world's turnover in foreign equities trading and has the fastest-growing share—currently 20 per cent—of the world's hedge fund assets. Along with other UK financial centres, such as Edinburgh and Leeds, it is also a leading centre for banking, insurance and asset management.
	The UK banking sector is the largest in Europe. London has 264 foreign banks, as the noble Lord, Lord Brooke, and others mentioned. Foreign-domiciled companies seeking admission to trading in London are an increasing source of revenue for the London Stock Exchange, with its Alternative Investment Market becoming the world's dominant market for listing small, growing companies and with around 2,000 UK companies and more than 300 foreign companies admitted to trading. In 2005, a record 19 American companies, matched by an additional 19 Chinese companies, were admitted to trading on the AIM. On the basis of those statistics, I disagree with the noble Viscount, Lord Trenchard, that the Stock Exchange is losing its competitive edge.
	Of course, London has a number of advantages. Its streamlined regulatory framework for its financial markets, overseen by a single body—the Financial Services Authority—is widely regarded as the best in the world and has been emulated by other advanced economies. The FSA seeks to support a principles-based approach to regulation that supports the innovative spirit and wealth-creating potential of the sector. The noble Lord, Lord Hodgson, queried whether the FSA was delivering value for money. The Chancellor announced in the Pre-Budget Report that the Government would commission a value-for-money review of the FSA, which will be published once completed.
	International studies consistently show the UK to be an attractive place to do business, having a relatively low tax burden, an entrepreneurial-friendly business environment, a flexible labour market and some of the most flexible rules on migration and temporary foreign workers in the world. The Highly Skilled Migrant Programme enables the UK to compete with the US and other major world economies for the world's "brightest and best".
	Building on that great British tradition of openness to foreign capital, companies, individuals and ideas, the UK has a reputation for a fair and non-discriminatory application of rules to foreign companies—an approach that is quite different from that of some other countries. This openness, along with London's natural advantages, such as the English language, its geographical location between north America and Asia, and historical links to both those continents, has enabled London to attract a large share of international financial business, along with the most talented individuals. The noble Lord, Lord De Mauley, in particular, acknowledged that.
	All those advantages are helping London to adapt better to the challenges and opportunities presented by globalisation, allowing the City to become a gateway through which the rest of the world can buy and sell financial services. That is no more so than for Europe, where single-market rules facilitate access to the rest of Europe for firms locating to London, so consolidating London's position. Indeed, last year, as has been mentioned, London was named for the 16th successive year the best European city in which to locate a business—a remarkable achievement.
	As many noble Lords have noted, over the coming decades we can expect rapid growth in the large emerging economies—in particular, China and India. This is shifting the global balance of economic activity. By 2015, China and India will account for at least 25 per cent of world output. This growth presents new opportunities for London which it is well placed to grasp. At the same time, increasing competition between London, other established centres and new growing centres, linked to the increasing internationalisation of financial markets and technological change, means that future success can never be taken for granted. The noble Baroness, Lady Noakes, referred to the possibility of China offering a city to join that elite group of international financial centres. That is a distinct possibility, and one imagines that it would be Shanghai if it happened.
	In his 2006 Budget, the Chancellor committed to establish a high-level group to consider the challenges and opportunities for the City presented by global economic change. This initiative has been warmly welcomed by most speakers today. This group will bring government and business together in the autumn to agree a new co-ordinated strategy to promote London as the leading global financial centre. UK trade and investment will be responsible for ensuring a joined-up approach to delivery of the strategy, working closely with other public and private sector stakeholders. Perhaps this is the push to which the noble Lord, Lord Brennan, referred. The noble Lord, Lord Levene, and others referred to the necessity of rebalancing the budget of UK trade and investment so that it properly reflects the focus needed on financial services. I shall certainly ensure that that matter is taken back.
	The strategy will target resources on specific priority overseas markets and sub-sectors that are likely to lead to increased opportunities for UK-based businesses abroad and inward investment. These priorities will be reflected in the overall UK promotional effort, including outward missions led by the Lord Mayor of London and by government Ministers, and inward visits by Ministers, regulators and key decision-makers from overseas. I was astounded at the travel schedule of the current Lord Mayor, to which the noble Lord, Lord Brooke, referred. It is something at which I can only marvel. The noble Lord, Lord Newby, asked when the high-level group was due to meet. I understand that it will be some time in the autumn. Invitations have gone out but replies have not yet been received from everyone.
	Through the better regulation initiative, both in the UK and Europe, the Government are cutting red tape and working to ensure that legislation is proportionate and risk-based. The Government are undertaking the most radical and serious systematic reform of Britain's regulatory system in recent history, building on the package of deregulatory reforms that we introduced following the two-year review of the Financial Services and Markets Act.
	In December 2005, the FSA published its Better Regulation Action Plan to further move the balance of financial services regulation towards high-level principles rather than detailed rules and guidance. We are seeking to identify all regulations that impose an administrative burden on businesses. We will calculate the cost for each of these and set targets to reduce administrative burdens later this year. I am bound to say that that is the opposite direction of travel to that suggested earlier by some noble Lords.
	In today's knowledge-based global economy, the success of the financial sector depends on the skills of the individuals working within it. London's future prosperity as the world's leading international financial centre therefore depends on its ability to keep those who work in it equipped with the best and most up-to-date skills. Indeed, research conducted for the City of London puts the availability of skilled personnel as the most important competitiveness factor. The noble Lord, Lord Newby, in particular, reminded us that this is not just a case of dealing with those who are currently, or potentially, engaged in the financial services business; there is a need to ensure, for the purpose of cohesion, that skills in the deprived communities are also upgraded so that they have a chance to engage. I pay tribute to the work of the Financial Services Skills Council and all other bodies involved in ensuring that financial sector employees have the right skills.
	With regard to London being a world city, the noble Baroness, Lady Hamwee, and the noble Lord, Lord Newby, talked about the wider role of culture and sport. That is absolutely right.
	The subject of infrastructure featured prominently for a number of speakers—in particular, the noble Lords, Lord Brooke, Lord McNally and Lord Levene, and the noble Baronesses, Lady Valentine and Lady Hamwee. I make it clear that the Government believe that Crossrail is an important project. That is why we are taking forward a hybrid Bill and why the Department for Transport recently provided further funding for cross-London rail links. But difficult decisions have to be taken on how it will be paid for. There will need to be a significant contribution from London business but, as the former Secretary of State made clear at Second Reading last July, it would be inappropriate to make decisions on the balance of funding before Sir Michael Lyons issues his report on local government finance. The Government's current priority is securing a successful package of a complicated hybrid Bill and ensuring that the scheme scope stays manageable.
	On other infrastructure issues, Transport for London's total grant will rise to £2.65 billion by 2009-10, compared with £1.8 billion in 2001. The Government have given Transport for London a funding package for the Tube of an average of more than £1 billion a year until at least 2010.
	The noble Baroness, Lady Valentine, asked whether migration of highly skilled workers would continue under the new arrangements. The UK policy on migration and temporary foreign workers is designed to allow flexibility for international businesses relocating employees into the UK. Our migration rules are some of the most flexible and fairest in the world, and the new points-based system that being designed is due to be rolled out in stages from late 2007. The Command Paper published by the Home Office in March indicated the structure of the system, and we believe that it will enable the appropriate migration to continue.
	Europe featured prominently in the debate. The Government have championed the liberalisation of financial markets within the European Union. Once the financial services action plan has been fully implemented, EU rules should offer significant opportunities for cross-border financial services trade within the single market, providing financial sector firms with a passport to operate on a cross-border basis in all other EU member states.
	Building the single market has of course resulted in regulatory change, attached to which are the inevitable adjustment costs. The Government, in partnership with the financial sector, are continuing to work proactively with the European institutions to ensure that EU rules are as business-friendly as possible and do not unduly hinder innovation or competition. The European Commission's recent White Paper sets out a five-year forward strategy that is essentially a pro-competition, pro-better regulation, minimalist legislation package, representing an excellent outcome for the UK, provided of course that it is put into practice. My noble friend Lord Brennan, the noble Lords, Lord Hodgson and Lord Marshall, and the noble Baroness, Lady Noakes, spoke about that, but it was the noble Lord, Lord Newby, who put down a marker on why regulation is needed in the first place.
	The Commission has agreed to review the outcome of the financial services action plan by 2009 and to change measures that are not working. There is agreement that there is no appetite for FSAP2 and that the Commission White Paper reflects very much the position for which the UK has lobbied—particularly regarding any new regulations that will be introduced. MFID, in particular, is welcome because it creates tremendous opportunities for UK financial services and follows better-regulation principles. In particular, there will be a proper cost-benefit analysis along the way. A single regulator is not realistic in the foreseeable future. Uniform legal requirements will be needed throughout the UK.
	My noble friend Lord Brennan suggested that the financial services action plan was not sufficiently aimed at the user rather than the producer. I agree that it is important that user views are taken into account. The European Commission has set up a users' group, FIN-USE, and a consumer group for this purpose.
	A number of noble Lords referred to taxation issues. I would have been tempted to spend the whole 20 minutes trying to deal with those, but it is not possible. Reference was made to missing out as a result of the location of funds outside the UK. There are obviously advantages for investment funds to be resident in the UK. There are many reasons why a fund manager may choose to locate a fund outside the UK. Despite what has happened, the high-value-added fund management activity continues to be undertaken from the City of London.
	My noble friend Lord Christopher and the noble Lord, Lord Hodgson, referred to stamp duty. This debate has gone on for many years, but there is no firm evidence that STRT has any material impact on the City's competitiveness, as recent reports have confirmed. London has many advantages as a financial centre and it is wrong to look at a particular part of the tax system in isolation.
	The noble Baroness, Lady Valentine, referred to retrospective tax being disruptive to business. Tackling tax avoidance is not incompatible with maintaining UK competitiveness. It could be argued that avoidance undermines unfair competition. The noble Lord, Lord Marshall, referred to continuing changes in the law, which can be disruptive and can create uncertainty. Tax avoidance undermines the ability of the tax system to deliver its objectives. The Government will continue to tackle avoidance by both closing loopholes and undertaking structural reforms. On the incidence of UK tax, referred to by the noble Baroness, Lady Valentine, the OECD publishes figures on tax and corporate income and employers' social security contributions as a percentage of GDP. They are often used as international comparisons. Latest OECD figures show that tax revenue from corporate income plus employers' social security contributions as a percentage of GDP in the UK in 2003 was 6.5 per cent. That was among the lowest of the EU 15 at that time.
	Unfortunately, I do not have time to revisit with the noble Viscount, Lord Trenchard, the issue of withdrawal of ACT. We have done it many times before. If the UK regime is so difficult, why are we leading in foreign inward direct investment? Why has the economy continued to grow for the longest period in its history? Why have we maintained low and stable interest rates?
	The Government want a successful and competitive financial sector, which is efficient for users and the wider economy, and which is socially responsible. That includes addressing money laundering, to which the noble Lord, Lord McNally, referred. I have an update but do not have time to mention it now. I shall write to the noble Lord, as the update is quite detailed on that and on the proper payment of taxes. We must ensure that people, especially those on low incomes, have access to mainstream financial products, such as bank accounts and low-cost loans, that the rest of us take for granted. That is a priority for this Government. Along with that comes the need for accessible financial education, to which my noble friend Lord Christopher referred.
	In conclusion, the Government's objective is for London to build on its position as the world's leading international financial centre so that it becomes even more successful as the global economy integrates. I remind the noble Viscount, Lord Trenchard, that that commitment is not an illusion. London is in a strong position, but as emerging economies develop their own financial sectors, government and business need to work together to deal effectively with the challenges ahead and deliver the full benefits for Britain of the opportunities presented by globalisation.
	Ultimately, however, there is only so much government can do to create an enabling business environment. In truth, it is the unwavering dynamism and innovation within London's financial sector that will ensure that it remains the success that it is today.

Lord Fowler: rose to call attention to the role of the Home Office; and to move for Papers.
	My Lords, there could hardly be a more relevant time to debate the role of the Home Office, given the events of the past few months. I am delighted that the noble Baroness, Lady Scotland, will be replying to this debate. I have thought for a long time that if I ever landed up in court guilty as charged I would certainly ask for the noble Baroness to defend me. Not only would I stand a good chance of being acquitted but, having listened to her, I would actually believe myself to be innocent.
	However, what has taken place in the Home Office in the past few weeks may test even the noble Baroness's skills. I shall give but a brief selection of misadventure and policy failure. In April, the Government admitted that more than 1,000 foreign prisoners were released into the community without being considered for deportation, including, it was stated at the time, 79 serious criminals. At the beginning of May, the Home Secretary, Charles Clarke, was sacked and a couple of days later his successor, John Reid, corrected the figure to 150 serious criminals having been released into the community.
	In the middle of May, it was revealed that five illegal immigrants had been working as cleaners. That is perhaps not the most surprising piece of news, except that they were working not just in the Home Office but in the immigration and nationality department. At the end of May, we had the extraordinary sight of several hundred prison officers and police in riot gear placed on guard around an open prison whose essential function is to prepare prisoners for release. And at the beginning of June, it was revealed that illegal immigrants could be issued with national insurance numbers even though government officials might suspect that their immigration documents were not genuine.
	That is all bad enough, but the most damning comment of all was made by the new Home Secretary, Dr Reid, who wrote off the efforts of his three predecessors and nine years of government by describing the system operated by his own immigration department as "not fit for purpose". So I think that we can agree that there is some cause for debate. I used to be chairman of the Conservative Party, and even at our most imaginative we could not have made up that particular list. However, in spite of the temptation, I do not intend to follow a remorselessly party-political path in this debate.
	I have one piece of experience that is relevant to this debate. Apart from in the 1980s, when I was in the Cabinet of my noble friend Lady Thatcher, doing other things, I followed the Home Office policy of three Labour Governments. In the 1960s, I was home affairs correspondent of the Times—I claim to have been the first home affairs correspondent on Fleet Street—and covered both Roy Jenkins and Jim Callaghan. In the 1970s, I was shadow Home Office spokesman under Ted Heath, when Roy Jenkins was Home Secretary again and was succeeded by the much missed Merlyn Rees. In the late 1990s, I became shadow Home Secretary and sought to follow the policies of the current Government. Frankly, in this comparison of Labour Governments, the current Government do not shine.
	I do not claim for a moment that problems in the Home Office area have arisen only in the last few years. The Home Secretary has the difficult task of holding the balance between liberty and security—it is not just a job in which shouting is enough—and, inevitably, crises arise. I remember the prison security crisis of the 1960s, for example. The convicted spy, George Blake, escaped from Wormwood Scrubs and one of the train robbers escaped. Also, I remember on a visit to Dartmoor, which was not exactly an open prison, coming quite by accident on an enormous giant of a man working entirely unsupervised in a field. He proved to be a prisoner called Frank Mitchell, who had a long history of violence and who later escaped—or, to be more accurate, was simply driven away, thanks to the Krays, and tragically was later murdered.
	So, yes, there have always been problems. But the difference between then and now is that a Home Secretary such as Roy Jenkins acted to put them right. So, on prison security, we had the Mountbatten commission, and a new regime was successfully introduced. What is disturbing about today is the failure of the Government and the Home Office to act even when there have been specific outside warnings.
	Let us take the example of national insurance. It is an extraordinary story that national insurance numbers and certificates should be issued as they have been. The noble Lord, Lord Grabiner, carried out a report into the system six years ago and told the Times that the situation was a scandal. He said:
	"One of my key concerns was that if you got hold of an NI number then it gave you access to all kinds of benefits—everything that was going. It was a fundamental part of the story".
	That warning was ignored.
	Let us take the example of foreign prisoners. The noble Lord, Lord Ramsbotham, who is present today, wrote a piece in the Guardian on 26 May, saying:
	"Somehow the Home Office in general, and individual parts, such as the prison service, simply will not listen. John Reid has found—I suspect to his total disbelief, coming from the Ministry of Defence—that, for example, no one was in charge of foreign-national prisoners. That I had recommended such an appointment in my annual report of 2001 appears, like many such recommendations to do with management, to have been ignored".
	Even worse, the Government have sometimes detected a problem themselves, said that action is needed, and then failed to take the action. On immigration policy, for example, the Government published in 1998 a White Paper with what has proved to be the rather ironic title, Fairer, Faster and Firmer, which was strong on alliteration but weak on follow-through. Among the defects noted by the then Home Secretary, Jack Straw, was a lack of "investment in technology". Eight years later, the new Home Secretary, Dr Reid, arrives to find that,
	"our system is not fit for purpose. It is inadequate in terms of its scope; it is inadequate in terms of its information technology, leadership, management, systems and processes; and we have tried to cope with this new age, if you like, with a system that has been inherited from an age that came before it".
	That warning and policy was ignored.
	Sometimes errors have resulted from deliberate government policy. In the case of the guards around the Ford open prison, we find that potentially dangerous prisoners had been transferred to open prisons as a deliberate Home Office policy. In the words of Mr McNulty, the Home Office Minister, now transferred to other duties, overcrowding in secure prisons meant,
	"open prisons being asked to take prisoners who would perhaps have not previously been allocated there".
	Who is to blame for this position? I do not think that responsibility can be fairly shifted to the Civil Service. Too often, that is the last resort of Ministers whose policies have failed. As it happens, I do not subscribe to the view that the Civil Service is entirely and absolutely beyond reproach, but I do say that the inefficient are the exception. In the main, Ministers in any government get an excellent service from their civil servants, as I know from my 11 years' experience in government.
	Much nearer to the mark, I suspect, is a comment made by the former director general of prisons, Martin Narey, that officials in the Home Office soon learnt,
	"never to pray in aid the view of the previous secretary of state".
	In other words, forget the previous regime and the stance of the previous Home Secretary; we are under new management and we will start again.
	Nor do I accept the theory that the Home Office is intrinsically ungovernable and that the only solution is instantly to divide it. There may be a case for division, but this would have to be very carefully planned. It is not an instant solution and it risks dividing responsibility when one of the priorities must be better liaison. For six years, I ran another big department—in fact, a bigger one than the Home Office—the DHSS, which dealt with health and social security together. I was constantly told that the public position would be transformed if only the department was divided, and after I left it was divided. But to judge from the headlines today, and over the past months, I doubt that Patricia Hewitt would say that health policy has become any less controversial as a result, and it is highly dubious that the department is in any way better run.
	The truth is that the responsibility for what has gone wrong at the Home Office is the responsibility of the Government and successive Home Secretaries. They have been in power for nine years, and it now rings very hollow to blame the last Conservative Government for their failures. But what makes the position so serious is that the issues that the Home Office deals with go to the very heart of life in this country. Let me set out some of the challenges.
	On immigration, we need a system that is well and effectively managed and which is demonstrably fit for purpose. Successive Governments have recognised the importance of immigration control, and it is right that the public should expect that every sensible step is taken to prevent and defeat illegal immigration. At the same time, we should also remember the importance of good community relations, particularly perhaps in our big cities, and we should not be complacent. Relations in some areas are jagged. Both from the point of view of justice and national well-being, we cannot afford to see young people grow up feeling that they are second-class citizens.
	On prisons, we need to recognise that overcrowding is defeating many of our aspirations for rehabilitation. When I was first elected to the House of Commons, I wrote a series of articles called The Prisons Crisis, because the prison population had risen to over 40,000. It is now almost 80,000. We need new prisons; the case is unanswerable. We also need to ensure that prison is not used as a social dumping ground for those with drug problems and the mentally ill when the nation can think of nothing else to do. Nor should prison be used to contain people for just a few weeks. There is no prospect of rehabilitation in that period. We would do far better to concentrate on devising effective community programmes.
	It is absolutely crucial that there should continue to be a fiercely independent inspector of prisons. The noble Lord, Lord Ramsbotham—I am glad to see him in his place—did sterling work in establishing this position, and it is vital in the prison context. There is a natural tendency for those working in the Prison Service to look inwards, perhaps even becoming introverted. An independent light from outside is a total necessity.
	On the priority of the police, we need a return to the police recruitment levels of the1980s. I make a direct plea to the Government about police force amalgamation. By any standards, amalgamations are a difficult and sensitive issue inside the police service. Previous Governments have thought long and hard before starting on such a programme. That caution is underlined in thick black ink when government Ministers rightly talk of the "war against crime" and the "war against terrorism". In this, the police are crucial. Frankly, it almost beggars belief that, at such a time, police authorities are going to court to prevent the amalgamation steamroller. That is self-evidently not what police efforts should currently be going into. I hope that the Government will think again on this, and not push through a police amalgamation programme against the wishes of so many forces and local communities.
	Lastly, the real trouble is that the Government and Home Office Ministers have been successful in things that do not matter, and unsuccessful in things that do. They have been successful in inventing slogans—"Fairer, faster, firmer", "Tough on crime, tough on the causes of crime"—although they are now coming back to haunt them. They have also been successful in gaining headlines, but those have all too often been the result of White Paper pledges and the promise of new laws. There have been something like 50 Home Office Acts since this Government came to power. New laws will not solve the problem of the failing immigration service, overcrowded prisons, or the problems of crime and terrorism. Above all, what is needed is a consistent policy consistently applied, with less reliance on the announcement of new laws and more emphasis on working with the extensive range of powers that already exist, and with less effort on blaming others and more concentration on maintaining the morale of all those working in the Home Office. That is not what we have had over the last nine years, and the public have been the loser as a result. I beg to move for Papers.

Lord Corbett of Castle Vale: My Lords, I thank the noble Lord, Lord Fowler, for giving us the opportunity to debate Home Office issues. I congratulate him on responding to his leader's call earlier in the week to stop dumping on the public sector and on not making the same mistake as the leader of his party, who misquoted the Home Secretary when he said that Mr John Reid had described his department as unfit for purpose. As the noble Lord acknowledged, he said no such thing; he said that the systems in place to deal with immigration were not fit for purpose.
	Mistakes have been made at the Home Office, some of them serious, especially over convicted foreign prisoners. Both the former and present Home Secretaries have frankly acknowledged this. They have been open about it. I was taken by what else the Home Secretary told the Commons Home Affairs Select Committee on 23 May at Question 866. He said that,
	"we are in a state of transition from a paper-based system that was not designed for the problems we are facing, towards a technologically-based system that seems to be on a horizon that never gets any nearer".
	Somewhat wistful and plaintive, perhaps, but not a bad summary of the position.
	This debate also gives us the opportunity to see where we have come from in the past nine years, and where we are now. Between 1979 and 1997, under the Government which the noble Lord, Lord Fowler, was happy to serve in, this is what happened: crime doubled, increasing faster than in any other major Western country; violent crime rose by 168 per cent; the number of convictions fell by one-third; and the chances of being a victim of violent crime trebled, and of being a victim of burglary, more than doubled. In 1992, the then Prime Minister John Major promised 5,000 extra police officers. Their numbers rose by only 3,500. When Michael Howard was Home Secretary, between 1993 and 1997, police numbers fell by 1,132. Mr Howard was kind enough to confirm these charges:
	"We hear only that for the period as a whole from 1979 to 1997 crime doubled under the Tories. It is an accurate figure—it did.".—[Official Report, Commons, 24/5/00; col. 999.]
	No wonder electors in 1997 judged that the Conservative Government could not be trusted with community safety or crime.
	The picture is different today, not just with a record number of police officers—now standing at 141,270, about 14,000 more than 1997—but because of the new ways that police and public are working together in their communities to provide more security and safety in and around people's homes. I know, from the regenerated former tower block estate of Castle Vale in my former constituency, what an impact this has on people's lives. About 15 years ago, it had one of the worst robbery, burglary and crime rates in the West Midlands. Today, it is the safest place to live in the West Midlands.
	The British Crime Survey in April told us that, in the year to December 2005, the risk of being a victim of crime remained the lowest since 1981 at 23 per cent. It showed that overall crime was stable, including violent crime. Domestic burglary was down by 11 per cent, and vehicle crime by 9 per cent. The police-recorded crime figures broadly confirmed the British Crime Survey result, expect that it showed an alarming one-fifth rise in detected drug offences, and a 1 per cent rise in violence against the person.
	I commend the extra cash and effort being put in by the Home Office to things such as the alcohol misuse enforcement campaign, the tackling violent crime programme and the Respect Action Plan, which reflects and meets the public's demand for effective action to combat anti-social behaviour. There is useful evidence that the threat of anti-social behaviour orders, and their allied anger management and parenting courses, are having an impact in areas where they are targeted. Although violent crime is stabilising, and nearly half of all violent offences involve no injury, there is still too much, especially with the deplorable culture of too many young people feeling it fashionable to carry knives, even into schools. It is a sad fact that with more employment, more enjoyment and more chances and choices to build better, more fulfilling lives, too many people are prepared to use violence.
	There has been an impressive improvement in the overall asylum position. The UNHCR tells us that number of claims last year was the lowest for 13 years, at 30,500; 70 per cent lower than 2002. This partly reflects better security at ports of entry, and joint working with the French and other immigration and border authorities, and partly because the ending of violent situations in some countries which provided the push factor to seek safety abroad. It seems that about 12,000 of those whose asylum claims failed are now being removed. It is good to know—and we should welcome this, because it responds to public demands—that a pilot project which offered failed asylum seekers £2,000 cash to return home, and £1,000 to help them resettle into jobs or start their own businesses, was taken up by almost 2,000 people in the first four months of the year. That helps them and their family, and saves the taxpayer an average of £11,000, which is the cost of forced removals.
	I have two final points. I applaud the more focused efforts to try to reduce reoffending rates among convicted prisoners, which are still too high. But those efforts are hampered by serious overcrowding. As the House of Commons Public Accounts Committee stated this week, there needs to be serious thought about making wider use of properly supervised, properly funded sentences in the community, with prison reserved for those convicted of the most serious offences. The Public Accounts Committee drew attention to the 3,900 remand prisoners, a third of whom do not get a prison sentence on conviction and who might instead be tagged while awaiting trial. It is also deplorable that 2,300 children are held in prison accommodation and 5,000 profoundly mentally ill people are in prison, rather than in secure psychiatric hospitals or hostels. At 77,000, our prisons are bursting at the seams and are frustrating the efforts of prison and civilian staff to offer help to convicted prisoners to build more fulfilling and useful lives on their release.
	I know that the Minister will understand when I gently say to her that I retain immense concern about the lack of a national firearms database, which is an interest that I share with my colleague, the noble Lord, Lord Marlesford. It is now nine years since Parliament decided that one should be set up. Can the Minister now confirm—and if she cannot, perhaps she will be kind enough to write to me—that the revised pilot scheme in the Metropolitan Police and Lancashire Constabulary areas did start, as promised, in April—though without the link to the police national computer, which renders it not as useful as it should be—and will she also now tell us when it is forecast that the full system will become operational?

Lord Ramsbotham: My Lords, I suppose I have to declare an interest in this subject, because for five and a half years I worked in the Home Office as a Crown official. I congratulate the noble Lord, Lord Fowler, on obtaining this debate on a subject of great importance, and that is not just repaying the kind words which he used about my work. When I went into the old Home Office, I was always amused that it had been subdivided into areas that were divided by colours. I worked in what was called the "grey area", but Ministers also worked in the grey area, so I felt something in common.
	It is very sad when one sees one of the great offices of state not just held up to criticism in the media, but held up to a form of ridicule that I have never experienced being applied to any office of state, anywhere. It must be a matter of great concern when a new Secretary of State describes one the parts of his office as not being "fit for purpose". "Fit for purpose" is not a term that I recognise, because, in the Army, when we inspected people, we inspected to see whether they were "fit for role". However, I am sure that is the same thing, so I was delighted to see that the title of this debate mentions the role of the Home Office. It is the role of the Home Office as a whole, rather than any of its individual parts, on which I would like to concentrate for a moment or two.
	I am pleased to be able to do so from the Cross Benches, which were described by a friend of mine as being the place where radicals of the extreme centre are allowed to lash out in every direction without being involved in party-political claim and counterclaim.
	I must start by disagreeing with the noble Lord, Lord Fowler, in his contention that the Home Office should not be split. From observation inside it, I believe that one of the major problems, particularly for the Home Secretary, is that the job is too big for any one man or woman to encompass at this moment. There are two separate functions. One is the administration of justice. Most of the failures and problems that we see highlighted in the media to do with the Prison Service, the probation service and so on are to do with the fact that there has not been adequate supervision of the administration of justice. When looking at the attempts to join up justice, I am concerned by how many bits of the justice system are now separated from the Home Office and are under separate ministerial direction. For example, social services used to be in the Home Office, as did youth justice, but the Minister for Children, who one would expect to be in charge of children, is sitting in the Department for Education and Skills. We see a White Paper about the rehabilitation of offenders coming from the Department for Education and Skills, the Home Office and the Minister for Work and Pensions. Only the other day in this House, I quoted concern over the voluntary sector in prisons, which is now apparently being directed by the defunct Office of the Deputy Prime Minister rather than any of the ministries which one might expect. Concern about the administration of justice in this country is now so strong that it merits the formation of one ministry responsible for justice and for nothing else.
	When one takes responsibility for justice out of the Home Office, an enormous amount of what might be termed the responsibilities of the Minister for home affairs are still left. In this House, we have dealt with many of them recently: terrorism, homeland security, identity cards and immigration and asylum. If we are to believe, as we are told, that there is a war on terrorism and that homeland security is so important, those things also seem to merit the attention of one person because they are a full-time occupation. I sympathise hugely with Mr Charles Clarke, who had to switch suddenly all the attention that he was paying to the criminal justice system to the demands of what happened on 7 July, and then return it, and then go on to other things. It must have made life pretty well impossible for him.
	If one accepts that premise—and I am fully aware that many people do not—one is in a position to start thinking about the better management of how these things should happen. When I look at what is happening in the Home Office at the moment, I suspect that it essentially boils down to the fact that three overstretched organisations—prisons, probation and the immigration directorate, quite apart from the police—are subjected to the day-to-day demands of having far too many customers—if that is the right word—and not enough resources to be able to deal with them. That is coupled with endless pressure to introduce untried theories, of which the practical details and problems have not been evaluated. I have always felt that a great deal of the problem is avoidable if new initiatives are not put in place until it is certain that the organisations that have to implement them are in a position to do so. The problem of imposing all the current initiatives—all of which we agree with—such as end-to-end offender management and so on, on organisations that are themselves not working properly is that they are incapable of implementing either the day-to-day demands, which are the things we read about in the press, or the things that we would all like to happen.
	Nobody can accuse the Home Office of being idle. Fifty-two laws, hundreds of new crimes, countless inquiries and Green Papers, numerous paper consultations and thousands of initiatives and other directions have come pouring forth, ending up—dare I say it—in confusion on the part of the people on the receiving end. I believe that a lot of that stems—this is not critical of the Government as such—from a mistaken belief that centralisation of control is the answer to everything. It is not, and certainly not when one is dealing with organisations containing people. It is not necessarily right or wrong, but the other way is to delegate powers to people who are responsible and accountable for their delivery. What happens with centralised control is that the people at the top, who are increasingly isolated from what is happening down below, demand information about what is happening. It becomes an increasing demand which results in increasing bureaucracy to cope with this demand. That is precisely what has happened, for example, in the case of the National Offender Management Service, which, in two and a half years, has gathered, as the noble Baroness, Lady Scotland, told me in a Written Answer, 1,647 civil servants already and has achieved precious little more than a rise in the re-offending rate of 5 per cent.
	I am not trying to be cynical, but I believe that centralised control of something as hands-on as dealing with offenders must be very carefully planned and implemented before it is introduced. I do not think that the Home Office, as presently constructed and staffed, is in a position to do this; nor do I believe that it makes sense to introduce such central control until you have got the parts that matter working. I question whether increasing bureaucracy in serving central control is the best way to manage some of the functions for which the Home Office is responsible.
	What is the answer? Personally, I believe that the reformation of the Home Office is an essential consideration. Obviously it will mean, if it happens, that it does not just consist of suggesting that the Home Office should be split. Urgent consideration should be given to the formation of a ministry of justice which takes into one place the administration of justice as a whole, leaving another department to manage home affairs. If you separate the two into manageable proportions we would not be reading the criticisms that we find so disturbing—because they refer, after all, to one great department of state which affects the lives of every person in this land.

Baroness Stern: My Lords, I am grateful to the noble Lord, Lord Fowler, for initiating this worthwhile and timely debate. His experience in these matters is hard to match in longevity or depth. The Home Office is one of the great departments of state. Many distinguished people have held the post, not just of Home Secretary, as we were just reminded, but of permanent secretary. I shall follow the noble Lord, Lord Brooke, by giving a small piece of history. One permanent secretary was Sir Geoffrey Lushington, who served from 1885 to 1895. He told a government committee on the penal system:
	"I regard as unfavourable to reformation the status of a prisoner throughout his whole career; the crushing of self-respect, the starving of all moral instinct he may possess, the absence of all opportunity to do or receive a kindness, the continual association with none but criminal . . . I believe the true mode of reforming a man or restoring him to society is exactly the opposite direction from all these; but of course this is a mere idea. It is quite impracticable in a prison. In fact the unfavourable features I have mentioned are inseparable from prison life".
	This is a rather more elaborate way of saying what a Home Office White Paper said in 1990:
	"Prison is an expensive way of making bad people worse".
	I begin with this comment but to illustrate the point that there is a history of evidence-based policy-making in the Home Office. For many years, distinguished public servants worked to manage a system that was proportionate, aimed at maximising public safety and minimising social damage, based on findings from a world-renowned research department, and grounded in a deep respect for law. Sadly, this is not the Home Office we now know. We have seen ways of implementing policy that are deeply flawed. I give just one example.
	The Home Office decided one January morning in 2004, on the basis of scant evidence—some would say no evidence—that the penal system would work better if the prison and probation services were abolished as separate entities and combined into one service to be called the National Offender Management Service, never mind that 8,000 people in it are not offenders at all because they are remanded in custody and presumed innocent until found guilty. Since then, the prison and probation services have struggled on against a background of uncertainty, indecision, plans, renewals of plans, reversals of plans, postponements and confusion.
	This debate is about the role of the Home Office and, as such, it must be about the limits of the role of the Home Office. I shall now concentrate on what is not the role of the Home Office. In 1971, the Home Office's work with children was transferred to the Department of Health. It is not there now, as we know; it came back. The Home Office is not the appropriate department to deal with the care of the most disadvantaged, problematic and damaged children we have. This February, the noble Lord, Lord Carlile of Berriew, published his shocking report on the use of physical restraints, solitary confinement and forcible strip-searching of children in custody, some of whom are as young as 12. In his introduction, he says that the way in which children are treated in penal custody would, in other circumstances, trigger a child protection investigation, and could even result in criminal charges. He made many recommendations, the first and overriding one being that,
	"Overall policies and responsibility for all children, including those in custody, should rest with the Children's Minister".
	The Children's Minister is in the Department for Education and Skills, which is where policies on all children should be made.
	The treatment of children in trouble with the law in England and Wales has been criticised by every organisation concerned with children and human rights. The unsuitability of the Home Office to carry out this responsibility was encapsulated for me in the Government's response to the 10th report of the Joint Committee on Human Rights, of which I am now a member, although I was not then. The committee recommended removing all children under 18 from prison-service custody into the care of people whose outlook is firmly grounded in a culture of respect for children's human rights and devoted to rehabilitation and care.
	In its reply, the Home Office said that it did not accept the recommendation because,
	"Children who are in custody are not just children".
	One must ask: what are they, then? In this comment, we see the Home Office—as it is and, indeed, must be—first and foremost a ministry of the interior, with security and public order at its heart but trammelled with numerous additional responsibilities that it cannot do well.
	Another role that, in my view, it cannot do well is to devise policies and operational procedures to govern how local communities ensure safety, social harmony and quality of life. These, surely, are matters for the Ministers who deal with local government, environment and health, and for local people. By allowing the Home Office such a measure of jurisdiction over social problems and social choices about the solutions, social policy becomes criminal policy. Should noble Lords think I am going a bit far when I say that, let me remind the House what the Attorney-General said in this House on 18 January:
	"It is often forgotten that anti-social behaviour orders are often a very important way of getting urgent intervention to people who are in need of help which otherwise they would not get".—[Official Report, 18/1/06; col. 663.]
	One must ask why they would not get it. Why does help come only with an order of the court?
	A case was reported that seemed to me to show clearly the transformation of a social policy matter into a criminal one—the story of Amy Dullamura, who kept trying to commit suicide in the sea at Aberystwyth and was put under an ASBO. She told the BBC, "The pain has led me to make desperate decisions about my future". The police said, "We took the step of applying for an ASBO because we thought that what she was doing was anti-social. It was causing the public who witnessed what she did distress". The anti-social behaviour order prevents her from going anywhere near the seafront in Aberystwyth. If she does, she can face five years in prison.
	I may have sounded critical of the Home Office. That is not my intention. The Home Office is basically our ministry of the interior. As such, it does what needs to be done, which is a very necessary role. The problem comes when it deals with matters that should not be seen through the perspective of a ministry of the interior. In the 1990s, I did a fair bit of work in eastern Europe and central Asia, helping countries transfer their prison systems from the Ministry of the Interior to the Ministry of Justice, which was a requirement of joining the Council of Europe. I remember in particular two outstanding prison reformers who were in charge of the prison systems in their countries. They both knew that it was essential for their reform plans to get out of the Ministry of the Interior and escape its mindset, which in its essence, and at its extreme, has a view of people—they are guilty more often than not; social arrangements—we need more control; and how to manage—from the centre and by decree.
	Professor Robert Hazell from the Constitution Unit gave evidence to the Constitutional Reform Bill Committee in April 2004. He said that,
	"there is a 'tension . . . between the values of justice on the one hand and the values of law and order on the other . . . this tension is universal, all governments have to address it and generally in most governments there is one figure, call him the Minister of the Interior or whatever, who upholds the values of order and there is another figure, often called the Minister of Justice, who upholds the values of justice. They will always clash'".
	We have no such clash in England and Wales. We need one. Therefore, in some form, we need a ministry of justice. Clearly, it is not a panacea. It is not a solution to the day-to-day management problems identified here today. It is not a way out of a crisis. It may not be the right moment for it, but in due course it will be a way to ensure that we have a society with more justice, particularly for its most vulnerable members.

Lord Marlesford: My Lords, we owe a debt of gratitude to my noble friend Lord Fowler for giving us this opportunity to consider some of the disastrous failures by the Home Office in recent weeks. They have cost the Home Secretary his job, which he had been in for only 16 months. But the problems went back much further. I can understand entirely why Charles Clarke would have liked to stay on to sort out the mess, but I wish that he had resigned. Ultimately, it is Ministers who must carry the can for the failures of their departments. For a Minister to resign when the Civil Service machine has failed is to strengthen his successor, who can then insist that the Civil Service falls into line.
	Going way back, I believe that, after a man broke into the Queen's bedroom in July 1982, Willie Whitelaw should have resigned as Home Secretary after first sacking the then Metropolitan Police Commissioner, Sir David McNee. Instead, he sent his Permanent Secretary to tell McNee to resign. McNee refused. The only person who lost his job was the sergeant of the Palace police guard, which was not a very satisfactory outcome.
	The tasks of the Home Office are not easy, either on policy or administration of policy. On policy, the Home Office has always been too defensive and too resistant to outside suggestions. As a noble Lord said earlier, NIH—"not invested here"—has tended to be its proud motto. Many years ago, before 1970, I was enthusiastic about computers. I suggested to senior officials that computers could be used to improve the administration of the Prison Service. After all, prisons are really only a form of hotel, and hotels were busy using computers. One comment made was, "Mark, we can't spend public money on computers until we are sure they are going to stay". So nothing happened for a while.
	On administration, there has been systemic failure from a catastrophic combination of incompetence, negligence and, I am afraid, corruption. I do not think this debate should pass without one person being named and shamed, and that is Sir John Gieve, who for five years until the beginning of this year was the Permanent Under-Secretary of State at the Home Office. It was his responsibility to see that his department was fit for purpose. He failed; his reward was to be appointed Deputy Governor of the Bank of England. As a former Treasury mandarin, he clearly has qualifications for the post. However, as his shortcomings as a manager have been revealed, he should perhaps take a sabbatical and go to business school.
	My own journalistic background has led me to persist in hypothecating on possible muddles and then checking whether they exist. I have done this mainly by Written Questions, and of course one question leads to another. Many of them are very simple and straightforward, but the Home Office has clearly had great difficulty in answering them, as it frequently exceeds by a considerable margin the two weeks in which questions are supposed to be answered. I have at the moment two Home Office Questions dating back to 26 April. Sadly, the Answers are frequently less than frank and seem to seek to conceal the truth. I do not have time to give further details, but they are on the record, strikingly in a series of Questions tabled in March, well before the tabloid balloon went up, when I asked about deportations of foreign criminals. I would only suggest that when they do draft replies to us, Home Office officials do not assume we were born yesterday.
	Ministerial responsibilities and the allocation of policy areas between departments have been very confused, and nowhere more than in the sensitive area of immigration. Tony McNulty, moved sideways from immigration to policing, has been replaced by Liam Byrne as Minister of State for Nationality, Citizenship and Immigration in the Home Office, yet Bridget Prentice appears to have responsibilities for immigration and asylum in the Department for Constitutional Affairs. These facts come from the departmental websites as of yesterday. Two Ministers in different departments with the same responsibility—surely some mistake.
	I know it is asking a lot of Ministers to expect them to do more than scan the answers to Written Questions before they sign them, but they could give Ministers a clue about the problems to come. If they do not have the time to interrogate officials, I suggest that they at least get themselves a special adviser to do it for them.
	This week the House of Commons Home Affairs Select Committee took evidence from Miss Lin Homer, head of the Immigration and Nationality Directorate, which has failed so spectacularly. What I found really chilling was that in 2005, 15 members of her staff had been dismissed or prosecuted over allegations of professional misconduct. That is an enormous number and I suspect it may merely be the tip of an iceberg. After all, there can be few areas of government where criminal elements find it so useful to gain entry. Only last month it was revealed that a chief immigration officer, James Dawute, had been suspended following allegations that he offered to help a rape victim with her application for asylum in return for sex. I have always believed that, however great its occasional failures may be, the Whitehall machine is clean. It was one of the prides of Britain. The Home Office is now casting doubt on that.
	The Minister would expect me to refer to the 10-year saga of the failure of the Home Office to implement the will of Parliament that there should be a national firearms register, as required by Section 39 of the Firearms (Amendment) Act 1997. The noble Lord, Lord Corbett, also referred to this. It is another charge in the "not fit for purpose" indictment. But there is another lesson on the inability of the Home Office to advance the operational efficiency of the police. When, on 14 February this year, I went with my noble friend Lady Anelay and the noble Lord, Lord Corbett, to investigate the delay at the offices of the Police and Information Technology Organisation, we were told that one of PITO's problems was that it had no powers to require individual police forces to co-operate with such national schemes. I very much hope that the establishment of the National Policing Improvement Agency under the Police and Justice Bill will remedy this situation. Much will depend on the leadership of that organisation.
	So what is my advice to the new Home Secretary? First, his bold and wholly justified condemnation of his department will not have made him many friends among the inadequates who populate parts of the Home Office, so he may not be able to count fully on their loyalty. The present Permanent Secretary, Sir David Normington, has not been there long enough to have any blame, and I am sure that he can be relied on fully to support Dr Reid.
	However, the Home Secretary should, I believe, make several changes. First, he must appoint an outside investigator for every Home Office agency to probe the effectiveness of their performance. It will not be a hard task. The investigator could start by asking the sort of questions that I have been putting down for Written Answer—which, incidentally, I shall continue to table—and they should quickly reveal weak spots.
	Secondly, the Home Secretary should order an investigation into the integrity of the entire staff of the Immigration and Nationality Directorate and into the methods by which they have been, and are being, recruited and vetted.
	Thirdly, Dr Reid should consider bringing in some of our best recently retired military staff officers to run these agencies. We all remember that, during the total shambles of the foot and mouth outbreak in 1999–2000, the Government only belatedly called in the Army. It was a brigadier in the north of England who was the hero of the hour and who solved the problems.
	Fourthly, the Home Secretary should encourage the Home Affairs Select Committee to continue to monitor, with vigour, the performance of his department.
	Fifthly, he should see that each of his departmental Ministers has a special adviser—there is only one in the department at the moment, and that is the Home Secretary's—one of whose tasks would be to monitor and, when necessary, challenge the briefing given to Ministers when they reply to parliamentary debates or Questions.
	Sixthly, he should welcome many of the amendments which we will seek to make to the Police and Justice Bill, most especially the removal of the proposal to amalgamate the five inspectorates, which is clearly aimed at reducing the scope for public criticism of the Home Office by the inspectors.
	Seventhly, he should discuss with the Prime Minister a possible redistribution—I am not talking about wholesale reorganisation—of Home Office functions, especially as between the Home Office and the Department for Constitutional Affairs.
	It is only by radical change that the Home Office can once again justify being regarded as one of the great departments of state.

Lord Norton of Louth: My Lords, I, too, congratulate my noble friend on initiating this debate. The Home Office faces a serious crisis. It has been the subject of extensive criticism. To say that is nothing new; criticisms have been levelled for decades. What is different this time round is, first, the scale of the criticism and, secondly, the fact that the acknowledgement that the Home Office, or part of it, is not fit for purpose has come from within—that is, from the Home Secretary.
	The Home Office is distinctive—though historically not unique—among government departments in constituting a department that is difficult to manage effectively. The reasons for this derive from the very form of the department. There are, essentially, four inherent problems: those of scale, range, nature and culture.
	By scale, I refer to the combined effect of the responsibilities borne by the Home Office. This derives from the origins of the department in 1782, when foreign affairs and home and colonial affairs became the basis of the separation between the two principal departments of state. Over time it has lost many of its responsibilities, becoming what A. Lawrence Lowell described, more than a century ago, as a "sort of residual legatee". However, even with the loss of many responsibilities, those that remain have grown in their scope and the department is still one of the biggest in Whitehall.
	By range, I refer to the disparate nature of the tasks. Though less disparate than before, they still cover a wide range. The noble Lord, Lord Ramsbotham, has already identified them so I shall not repeat them. Some of these are the responsibility of particular agencies, bureaux or services. We have a number of bodies within one umbrella department.
	By nature, I refer to the issues covered. They tend to be matters of immediate public concern, issues which can create problems that loom up to dominate the political agenda. The late Lord Jenkins of Hillhead once observed that, when he was at the Treasury, changes could be foreseen some weeks ahead and were part of the general ebb and flow of events, whereas the climate at the Home Office was,
	"one of tropical storms that blow up with speed and violence out of a blue sky, that dominate the political landscape for a short time, and then disappear as suddenly as they arrived".
	The nature of the problems is such that the department tends to be in reactive mode, the proof of which is demonstrated by the Home Office Bills brought regularly before this House and designed to address the problem of the day—a point made by Lord Jenkins and Lord Callaghan. The position has doubtless changed over the years, but change can often be slow, especially in a department where, traditionally, the career of many civil servants has been confined to it.
	There are long-standing problems. Julian Amery once observed that it takes a good jockey to ride a difficult horse. The Home Office, for the reasons that I have given, is a difficult horse. However, it appears to have become more difficult in recent years. Despite the changes in the department, it has never really managed to keep pace with the scale of the problems it faces. This has been compounded by changes in relationships within government. As a result, the Home Office has never really been able to plan ahead on any clear, comprehensive scale. It has either been in response mode, dealing with the latest storm, or pursuing the latest initiative of the Home Secretary. There has been no clear conception of where the Home Office, as a home office, is going. Dean Acheson observed that Britain had lost an empire but had yet to find a role. The Home Office has shed many of its responsibilities without acquiring a clear sense of direction. It may have an idea of what it is for, but not necessarily of where it is going.
	What, then, is to be done? The problems that need to be addressed can be grouped under three headings: co-ordination, structure, and relationships. What has happened at the Home Office highlights wider issues of government. There is clearly a problem of co-ordination within the Home Office. This exists both horizontally and vertically. The greater differentiation of tasks within the department has provided, at least on the surface, more clearly defined responsibilities, but it has generated problems of communication between the different parts. It has also generated problems in overall co-ordination at ministerial level. It is not clear that the normal structure of a Secretary of State assisted by junior ministers has worked as it should. There is, for any new Secretary of State in government, inadequate training, guidance and dissemination of best practice in running a department. There may need to be clearer, more structured processes in place.
	The problem with structures is derived essentially from the origins of the Home Office. This residual legatee department has a clearer shape than previously, but it is derived largely from those functions that it has retained rather than from a detached reconfiguration of its role within government. I think there is a case for revisiting precisely what the role of the Home Office is or, rather, should be. As has already been mentioned, it has to be looked at alongside the role of other departments. We have a Department for Constitutional Affairs which has retained many of the attributes of a Lord Chancellor's department. What is the relationship between the DCA and the Home Office? We have heard the various arguments for a ministry of justice and a department for homeland security, the case for which was made very powerfully by the noble Lord, Ramsbotham, and the noble Baroness, Lady Stern. On this matter, I side with the Cross-Benchers: there is a case for looking at a more rational structuring of departments.
	The third problem touches on the fundamentals of our system of government. Recent years have witnessed a failure by Ministers to appreciate the interdependencies at the heart of the political process. There have been conflicts between Home Secretaries and the courts. These have not been particular to this Government, although they appear to have reached a new level of intensity. There have been conflicts between Ministers and civil servants. There have been some high-profile cases, as in the Home Office, but there is a pervasive problem. Research I undertook some years ago into the role of senior Ministers found that mutual respect and the recognition of interdependency remained a feature of ministerial-Civil Service relationships. One can no longer draw that conclusion. That relationship remains in some cases, but the plates have shifted. The comments last week of Jonathan Baume, general secretary of the First Division Association, based on events in the Home Office, reiterated those which he had made previously. This problem is exemplified by the Home Office, but it is not particular to it.
	I have not offered detailed prescriptions for tackling the first two of these problems. They are problems for government. It is up to the Government to address them, and to be accountable to Parliament for what they have done. The third problem, though, is of a different nature. The glue that holds the different elements of our political system together is losing its adhesive strength. This erosion of relationships also has to be seen in the context of institutional fragmentation. Our constitution is undergoing major change without our having a clear sense of where we are going. We need to address the problem in the round. Having reflected on this for some time, I believe the time has come to establish a Royal Commission—in essence, a Royal Commission on the constitution—to make sense of what is happening and to offer proposals.
	I use today's debate to put down a marker. Changes within the Home Office are necessary. For the reasons I have given, they will not be sufficient.

Baroness Anelay of St Johns: My Lords, I also thank my noble friend Lord Fowler for giving the House this timely opportunity to consider the role of the Home Office, which has been engulfed by a series of crises in recent months. It is a great department of state and it should maintain internal peace and order in ways that secure, as far as is possible, our British freedoms, civil liberties and way of life.
	The question is how it can do that effectively, when the previous Home Secretary branded his own department as being at times "seriously dysfunctional"—and for the sake of the noble Lord, Lord Corbett, I direct him to the Financial Times on 27 April for that quote. The current Home Secretary has said that the IND is not fit for purpose. John Reid blamed his predecessors and his officials for the problems. David Blunkett in newspaper articles this year has blamed his officials. The Prime Minister's desperation to escape from a hole showed when he tried, without success, to blame my honourable friends for what happened over a decade ago. So does the Home Office need new Ministers, new officials, a new focus or all three? Is it unmanageable, or has the management become unfit for purpose?
	Jonathan Baume, the general secretary of the First Division Association of civil servants, said last week:
	"Some recent criticism of the civil service looks like an ill-disguised attempt by some politicians and commentators to make excuses, and shift responsibility for struggling policies from ministers to the staff who serve them".
	As the daughter of a civil servant even I must admit that, while they are superb most of the time, they are not perfect. Which of us is? It seems that some recent Home Office blunders contain at least some elements of bureaucratic error. But mistakes are more likely to happen when Ministers relentlessly hurl initiatives, targets and policy changes at an already overburdened department without first checking to see whether it is coping with the existing challenging workload.
	In the foreign prisoner fiasco, the 1,000 or more convicts who should have been considered for deportation were let out partly because of the poor records kept by prisons, and partly because immigration officers failed to assess their cases before they were due for release. As Prisons Minister, what steps has the noble Baroness taken to ensure that prisons co-ordinate with the IND in the way that everybody thought they did before the scandal broke, and that the appropriate assessments are now made?
	Stories about the Criminal Records Bureau checks wrongly labelling innocent people as criminals, sex being offered for visas and national insurance numbers being given to illegals all give an impression of a department in crisis. It must be damaging for the morale of public servants who are dedicated professionals.
	How has bad government policy contributed to those crises? As has already been mentioned, there have been more than 50 different pieces of Home Office legislation and countless pieces of secondary legislation, initiatives and policy launches since 1997. The policy on asylum seekers under Mr Blunkett saw a lurch from the dispersal of asylum seekers to tougher border controls and enforced removals. When the Nationality, Immigration and Asylum Act went through in 2002, the Government were obsessed with the idea of having four huge accommodation centres. We warned them then of the defects in such a policy; they pressed ahead with it, then effectively dumped it later. Will the Minister tell the House what criteria the Home Office now applies when dispersing asylum seekers across the country? She will no doubt have seen the disturbing story in the Sunday Express this week that the result of Home Office policy, until a change of direction in April this year, had been to create ghettos along ethnic lines.
	In drugs policy, the reclassification of cannabis caused confusion, not helped by Home Secretaries having public second and, indeed, third thoughts about it. After the announcement of a U-turn yesterday, Norman Brennan, director of the Victims of Crime Trust said:
	"The Government has clearly lost its way and is sending out mixed messages".
	Then there is the matter of the 1,000 or so prisoners who abscond each year from non-secure open prisons. I do not doubt that trust in an open prison is always a problem. The Home Office line has always been that such prisoners are being readied for release, and present no imminent danger to the public. But it has now emerged that Tony McNulty, with prison overcrowding reaching critical levels, signed a letter a little while ago sanctioning a change in policy which led to open prisons being asked to take prisoners who might not previously have been allocated there. As Minister for Prisons, has the noble Baroness reviewed that policy and made changes?
	Is the Home Office too big to be operated effectively? There were very significant contributions on the analysis of the problem by the noble Lord, Lord Ramsbotham, the noble Baroness, Lady Stern, and, in particular—I hope they will not mind my saying so—my noble friend Lord Norton of Louth, who made a forensic examination of the matter. The Home Office is not an easy department of state to administer; nobody would say it was. It covers vast policy areas—anti-terror, drugs, prisons, probation, sentencing, youth justice, immigration, asylum, nationality and citizenship. It is an enormous task for anyone to grapple with. One suggestion has been to break it up into a ministry of justice and a ministry of homeland security. Another is to have two Cabinet Ministers in the department. So far, the Prime Minister has rejected both ideas. I hope that he might look again constructively at the proposal to have a Minister of homeland security.
	Whatever the size of the Secretary of State's empire, it is clear that it is the job of Ministers to give leadership and ensure that structures are in place to make it possible for those who work for them to carry out their tasks effectively, so that we do not again see the shambles that came to light this year.
	Of course, Ministers should not micromanage. They are not there as managers in the first place, although sometimes it seems that they would like to be. For example, in the Police and Justice Bill, which had its Second Reading this week, there is a sign of the Government trying to move more into an operational direction for policing, threatening to undermine the tripartite relationship. Although the noble Baroness, whom I always trust in these matters, gave an assurance on the record that she values that relationship, she is not in control of the policy. There is a danger that the relationship could be unbalanced. I thought the analysis that the noble Lord, Lord Harris of Haringey, gave on Monday was very valuable.
	We need leadership to ensure consistent policy, consistently applied. Ministers have simply pressed ahead with too much legislation and taken their eyes off the ball. It is ironic that, at the very time that the Home Office was pushing on with the new penalties for employers of illegals in the Immigration, Asylum and Nationality Act earlier this year, the department itself was employing illegals to act as cleaners in one of its own departments. Of course, John Reid immediately denied that the cleaners had gained access to Home Office buildings, presenting their detention as a security triumph. But the following day the Home Secretary was forced to admit that he had misled the public. He was more interested in chasing headlines than presenting the facts to the public. The cleaners had got in and had been doing the work for some considerable time.
	That is a key problem. Too often, Ministers have mistaken hyperactivity for effective leadership of the administration. It may seem dull to an ambitious politician to ensure that an administration is effective but it is the stuff of successful government. The maintenance of internal peace and order is a heavy responsibility, and it is one that must be exercised with a duty of care for both the freedom and security of the individual citizen.
	The noble Baroness, Lady Scotland, has repeatedly said that the Government,
	"will continue to put the safety of the people of this country first, second and last".—[Official Report, 16/5/06; col. 140.]
	That is a laudable objective, and of course she has our full support for it. But today's debate has exposed the failings at the very government department charged with securing that objective. The new Permanent Secretary, Sir David Normington, has said that recent stories have "inflicted immense damage" on the Home Office and undermined public confidence in its ability to protect the public. I am afraid he is right.
	So let us have a break from the hyperactive politics of the headline and TV video clip, with Home Secretaries in protective vests on dawn raids with the police. Let us have more reflection before action—action that makes the Home Office 100 per cent fit for purpose and, as my noble friend Lord Norton of Louth said, that gives the Home Office a clear sense of direction.

Baroness Scotland of Asthal: My Lords, I join my voice to all those who have commended the noble Lord, Lord Fowler, for introducing this debate. I thank him, in particular, for the kind compliments that he made to me. I assure him that if, when I am no longer privileged to represent the Government at the Dispatch Box, he ever finds himself innocent, wrongly charged and in need of assistance, it will be my privilege and pleasure to come to his aid. He will find that I will scrutinise the evidence brought against him, I will analyse the fallacious and contentious submissions that are tendered against him, and I will rely on the evidence and not on supposition or distortion. If we are so lucky as to have a fair, just and right-thinking tribunal, he will, I hope, secure his just acquittal. I can also assure him that I will be so anxious to assist him that he will have my support free, gratis and for nothing.
	I assure the noble Lord that in responding to this debate those same qualities will be brought to bear. I am grateful to my noble friend Lord Corbett of Castle Vale for the helpful evidence that he has adduced in relation to the reality of the facts as to what we inherited and what we have achieved. Of course, his recitation of those facts was correct.
	There are more police officers today than at any time in the history of the service, with a total of 141,270 officers on 30 September 2005. The visible uniformed presence will have been further bolstered by an increase in the number of CSOs to 28,000 by 2008. The reduction in crime, the improvement of the work that we have done for victims and witnesses, and the ability that we now have to work together are things of which we dreamed in the past but could not obtain. I remind the House again of the very sage words of Lord Justice Auld: when he undertook a review of the criminal justice system, he found that the system was not fit for that name because people were working independently. The creation of the national and local criminal justice boards, the crime and disorder reduction partnerships and the ability to work together in partnership has been the way in which we have delivered the extraordinary successes that this Government have been privileged to be part of. I emphasise that that success is not the Government's alone. They may have created the framework and the tools, which enabled those changes to take place, but the real credit has to be given to those who have worked so hard and so diligently together across government with non-governmental agencies and with the communities to bring about the huge improvements. That lesson of partnership, participation and sharing is one that the Government not only applaud but will continue to follow.
	I must say how much I agree with noble Lord in his statement that the Home Office is not ungovernable. The division suggested by the noble Lord, Lord Ramsbotham, is not a panacea and, if I may respectfully suggest, would be unlikely to provide the relief that he seeks. The noble Lord, Lord Brooke of Sutton Mandeville, was right to say that one would have to be cautious about any change and judicious in considering how such change should be made. Many things have migrated from the Home Office, not only to the Department for Culture, Media and Sport, but also to the Department for Constitutional Affairs. Those migrations have been carefully managed and smoothly done. One can see from that transition the benefits and merits that have been obtained thereby.
	I disagree that there have not been many successes of which we should be rightly proud. But, as I have come to learn, working in the Home Office is very much like painting the Forth Bridge. One starts at one end and paints with due diligence—and glowing is the part one leaves behind. But forward always is the sharp relief that the new paint casts on the new parts that are still in need of care and attention. I assure noble Lords that the current Home Secretary is rigorous in his approach to ensuring that all parts are reached, and reached in a way that will make significant changes.
	The noble Lord, Lord Fowler, said that there has been success in things that do not matter and lack of success in things that do. I assure him that success in anti-social behaviour orders, success in the reduction of crime, success in the ability to address the horrible scourge of domestic violence, success in how we deal with young people in relation to crime and the work that has been done by the youth justice boards are all very valuable to the people of this country. Those are things that do matter—not perhaps to all, but certainly to us and the people who are badly affected by crime.
	I say to the noble Baroness, Lady Stern, that evidence-based policy development is still alive and well in the Home Office. I assure her that the changes that we seek to put in place are based on empirical evidence. The noble Lord, Lord Dholakia, is right to identify the things that make a significant difference for prisoners and, indeed, for victims. If noble Lords have had the opportunity to look at our five-year strategy they will find included in it all those elements, such as the work that we have to do together on housing and education, and on finding other opportunities to work. All those things on health are within it and within the seven pathways out of crime. I have spoken about the creation of the three alliances in this House before—the corporate alliance, the civic-based alliance and the faith-based and voluntary sector alliance are all opportunities for change, improvement and advancement.
	I know that the noble Baroness, Lady Stern, understands that notwithstanding their youth we have within our estate some very dangerous young people who are needy but who present dangers to others. For them there are and will remain a need to respond appropriately, to keep them secure but also to keep others secure from them. That is not to deny the fact that they are children or that they have needs as children, but to accept that they pose a risk to the public that must be safely managed.
	These are all issues that we must solve. If we are to solve the issues with which we are faced, we have to take a holistic approach, which means working in partnership with others. May I say to the noble Lord, Lord Ramsbotham, that I was rather surprised by his surprise that we should be working so energetically with the Department for Education and Skills? If we are to make the changes in education that the noble Lord, Lord Dholakia, spoke of, it is fundamental that education provision should be made available to prisoners and to those who offend in the community in a way that is consistent and sound. I am pleased and happy—I go so far as to say delighted—to be working in closest union with my colleague in that department, Mr Phil Hope, on that agenda. We are determined to make significant change.
	I do not hide from your Lordships that if our department is to succeed in the changes that it needs to put in place, it will have to work with all others. We will have to work energetically with the departments responsible for health, education, housing, and with the DCMS in finding alternatives for young and other offenders and finding wholesome activities for them to do. That partnership work is fundamental and is very much part of this department's ethos.
	The noble Lord, Lord Norton of Louth, made some powerful comments about the need for communication. I understood some of the comments that he made about how, as one homes in on the development and delivery for individual parts of the department, it can become increasingly difficult to maintain the synergy and communication, so it is necessary to look systemically not just at the individual parts but at how the links between those parts operate. I assure him that in the capacity review that is being undertaken, that work is continuing right now. We hope that by the end of this Session we shall be in a better position to see whether all the structures for proper delivery are there.
	In looking at the need for change we should not in any way undervalue the changes that have already been delivered, because they are all part of a piece. The review focuses on five key lines of inquiry. First, there is the role of the executive board, including the non-executive directors; the leadership and empowerment of the department; the variety, appropriateness and complexity of the business models; the impact on the delivery chain; the corporate services, and how they support the business; and the prioritisation of resources around what is most important. We expect to be able to report on that in due course; it is being energetically pursued. The noble Lord is also right in saying that this is a new way of looking at delivery and how government function. We have tried to amend the system that we inherited and have managed many improvements. The noble Baroness, Lady Anelay of St Johns, talked about our work on asylum and immigration, but she knows as well as I do that when we started this work using the old system we inherited, the application took about 22 months; it now takes eight weeks. I am sure, in her normal, charitable, well reasoned way, the noble Baroness would agree that eight weeks is a little better than 22 months. We have delivered again and again, but there is much more for us to do. The energy has not gone out of this Government.
	On the matter rightly raised on so many occasions by my noble friend Lord Corbett and the noble Lord, Lord Marlesford, on the work being done by PITO, the re-run of the beta pilot will now go ahead on 5 June, as scheduled—so it should have gone ahead. If successful, the system will then be re-rolled out to all forces by March 2007. If there are any changes, I will write to the noble Lord, Lord Marlesford, and my noble friend Lord Corbett. I assure noble Lords that nothing causes me more pain than knowing that when I next come to this Dispatch Box I will be hit with the same issue both from behind and before. My energy in ensuring that I have an acceptable answer for your Lordships is not to be underestimated.
	The changes needed in the Home Office are clear; I have referred to them already and they are going to be put in place. On foreign national prisoners, I assure the noble Baroness, Lady Anelay, that we are working hard on the issues of the join between the Prison Service and the IND. A review is going on to see how we can make that system work as effectively and efficiently as we can in a practical way. Much has been done, but we understand that much remains to be done to ensure that that part of the system is truly fit for purpose and can be replied on to deliver what we seek.
	I know that we will return to these debates on many occasions. I am confident that, when we do so, there will be even more attention on these issues. I assure noble Lords that I have greatly enjoyed this opportunity to defend, in my modest way, the Home Office. I hope that noble Lords will feel that the Home Office can be acquitted, and remains a great department of state.

Lord Brown of Eaton-under-Heywood: My Lords, it would not be altogether surprising if this proposal for a new EU fundamental rights agency were to be received with some scepticism. At the moment, human rights generally are getting a poor press. Undeservedly so in my opinion, but it is so. Fundamental rights, which, in the absence of a constitutional treaty, lack the force of law, are treated warily by many, and the idea of yet another EU agency—indeed two new agencies as will be immediately apparent from the scope of this debate—is unlikely to be greeted with universal enthusiasm.
	I shall return later to the question of whether there should be two new agencies, rather than one—a question that I suspect other speakers will also address—but first let me indicate briefly why, taken as a whole, the EU Committee—and not least Sub-Committee E, of which I have the honour to be chairman—extends a cautious welcome to the proposed new agency. I say "a cautious welcome" because for this new agency to be worth while and successful a number of conditions must be satisfied. Among them are that the agency must be more than merely a postbox for collating and sorting information coming from other agencies; it must have power to seek out information for itself; it must be competent to act in relevant areas, not least, as I shall suggest, in third pillar matters where fundamental rights questions often arise; it must be independent rather than subject to excessive control by the Commission or the Council; and it must avoid the risk of duplicating rather than complementing the work of the Council of Europe, which is the pre-eminent body in the human rights field.
	Let me come at once to some of the concerns about this proposal that are highlighted in the committee's report, particularly about the scope of the agency's work. I fear that I have time to comment only on two or three of them. The first is the very important question of whether the agency should have a third pillar remit. The third pillar, let us remind ourselves, is concerned with police and judicial co-operation in criminal matters. The committee feels strongly that the agency should have that remit. Third pillar proposals regularly engage fundamental rights; for example, measures such as the European arrest warrant and the exchange of personal data in criminal investigations. The committee thinks that it would be odd and unsatisfactory not to empower the agency to operate in those areas. We understand that both the European Commission and the Parliament support us in this view. Certainly, in June of last year, when the Commission adopted the proposal for a regulation establishing the new agency, it adopted at the same time a decision empowering it to act in third pillar matters.
	We understand that the Commission found our report particularly convincing on this point. The European Parliament too strongly supports a third pillar remit. Indeed, the LIBE Committee, the Parliament's committee on civil liberties, justice and home affairs, in a draft report this year, suggested that the agency should be empowered not merely in third pillar matters but in second pillar matters too; that is to say, with regard to common foreign and security policy matters. We do not go that far, but we certainly urge a third pillar role for the agency.
	However, the Government are opposed to this and appear to question both the legal base for it and the value of empowering the agency to operate in this area. We are rather puzzled by those objections. Certainly, neither of them was raised in the Government's original letter clarifying their approach to the proposal before we embarked on our inquiry. If, as the Government now say, Article 308 of the Community treaty allows for the establishment of the agency, providing the Council as it does with the means to attain the objectives of the Community if the treaty has not itself provided the necessary powers, it is difficult to see how Article 6 of the Union treaty and Title 6 of the Union treaty, which provides for common co-operative action under the third pillar, could fail to constitute a sufficient legal base for the protection of fundamental rights there too. After all, the main treaty provision which requires respect for fundamental rights is Article 6(2) of the Union treaty, which provides:
	"The Union shall respect fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms . . . and as they result from the constitutional traditions common to the Member States, as general principles of Community law".
	Article 6(4) provides:
	"The Union shall provide itself with the means necessary to attain its objectives and carry through its policies".
	Surely, empowering the fundamental rights agency to act in third pillar matters would be an obvious case of the Union providing itself with the means necessary to attain its objective of respecting fundamental rights as required by Article 6(2).
	As for the value which the agency would bring to consideration of third pillar matters, we believe that there is a clear role for a body expert in EU law to advise on compliance with fundamental rights at both the legislative and the implementation stages. Although the Government's original response to our report was that the agency would simply duplicate existing human rights monitoring, which is effectively carried out by the Council of Europe and other international bodies, we are glad to note from the Minister's latest letter to the committee that it is now apparently acknowledged that advice on compliance with fundamental rights in third pillar matters might, indeed, be helpful. In this connection perhaps I may say how enormously grateful we are to the Minister for providing a response last week to our discussions on all this in time for today's debate. Alas, the Government it appears are not alone in opposing a third pillar. Apparently they are joined by Slovakia and Germany.
	The second important question arising about the scope of the agency's remit is whether it should have a legislative scrutiny role. Article 4(2) of the original draft regulation said, in terms, that the agency's opinions should not extend to questions of the legality of proposals from the Commission or the positions taken by the institutions in the course of legislative procedures. We thought that that was a pity and that the agency could play a valuable scrutiny role. It seemed to us unsatisfactory to have an agency that could intervene only after the adoption of a proposal, even when it was evident that the proposal raised serious human rights issues. Again, it appears that the Government took a different view and thought that the agency should not play any such role.
	Happily, the European Parliament shared our view. The LIBE Committee's most recent report proposed that the regulation should provide for pre-legislative scrutiny and we are glad to note that Article 4(2) of the proposed regulation has now been amended by the presidency to allow for some such limited role. At the request of the European Parliament, the Commission or the Council, the agency will be permitted to formulate opinions on specific topics concerning Commission legislative proposals.
	My third and final question concerning the scope of the agency's work is whether to include in the text of the regulation express reference to the European Convention on Human Rights or the Charter of Fundamental Rights. Article 3(2) as originally drafted—on which we originally reported—stated that,
	"the agency shall refer in carrying out its tasks to fundamental rights as defined in Article 6(2) of the Treaty on European Union and as set out in particular in the Charter of Fundamental Rights of the European Union as proclaimed on 7 December 2000".
	I have already cited Article 6(2), which expressly refers to the convention. Our report suggests that the agency should use the charter as the principal point of reference, but it would be impossible to monitor fundamental rights across the Union without reference to the convention, which is, of course, the seminal instrument in the field—so the convention should be expressly mentioned in the text.
	The Government agree that the agency should refer to the charter as an important political declaration that reaffirms rights already agreed by member states in previous treaties, including the ECHR but, because the charter is not legally binding, to avoid confusion, as they put it, the Government want to remove mention of the charter from the body of the regulation and place it in the recitals. In other words, far from adding reference to the convention in the text of the regulation, as we advocate, the Government want to remove reference in the text even to the charter.
	We note from the new presidency text of the regulation that Article 3(2) has been amended not merely to retain its reference to the charter but also to include reference to the convention. It is true that neither the convention nor the charter have formal legal force binding on European institutions. The convention does not because, although all member states are signatories, the EU itself has yet to accede to the convention although for many years that has been advocated, most recently by the Juncker committee, chaired by the President of Luxembourg. The charter does not have legal force because it has not been incorporated into European law, but the charter puts flesh on the bones of Article 6(2). It identifies what it refers to as the constitutional traditions common to member states.
	The question is whether there should now be a new European institute for gender equality as well as a new fundamental rights agency. This is discussed in chapter 4 of our report under the simple title, "One Body or Two?" Initially, the question was considered by Sub-Committee G under the chairmanship of the noble Baroness, Lady Thomas of Walliswood. It concluded that the case for a separate body had not been demonstrated, but suggested that Sub-Committee E should consider the question again in the context of our inquiry into the fundamental rights agency. We, too, concluded that so far from there being any justification for creating a separate gender institute, there would in fact be positive advantages in having a single body to cover human rights and all equality strands. After all, in the domestic context, the Government have recently supported the establishment of a single new body, the Commission for Equality and Human Rights, to incorporate all the existing bodies—the Equal Opportunities Commission, the Commission for Racial Equality, and the Disability Rights Commission—as well as tackling other forms of discrimination.
	The fundamental rights agency is intended to incorporate the nine year-old European Monitoring Centre on Racism and Xenophobia. One might ask whether it is inconsistent to absorb that body's work within a larger human rights agency, yet at the same time establish a separate body to deal with gender equality. Is gender equality really more important than racial discrimination? We found no convincing argument for two bodies rather than one. We do not accept that gender rights would be marginalised by the creation of one body, and we regret the proliferation of EU agencies and the loss of the economies of scale that would result from one body rather than two. It may seem as though the political die has been cast so far as that issue is concerned. It is to be hoped, however, that our report may contribute to other battles that may be won.
	In presenting this report, I am all too conscious of the many, many issues raised by the proposal, with which our report deals and on which it is impossible to touch. I hope other members of the committee will make other important points, and that the noble Lord, Lord Norton of Louth, will speak on the agency's independence, particularly in the context of its management structures. I also await with interest the views of the noble Baroness, Lady Thomas, on the related question of the gender institute, and I greatly look forward to the Minister's response on at least some of the points that we have made.
	Finally, I pay tribute to all the members of my sub-committee, particularly our legal assistant, Michele Lafferty, whose contribution to the inquiry and the text of the report has been immense. I am really most grateful to them all.
	Moved, That this House takes note of the Report of the European Union Committee on Human Rights Protection in Europe: The Fundamental Rights Agency (29th Report, HL Paper 155).—(Lord Brown of Eaton-under-Heywood.)

Lord Harrison: My Lords, I, too, thank the noble Lord, Lord Brown of Eaton-under-Heywood, for introducing this debate in his maiden speech. I extend my thanks also to the noble Baroness, Lady Thomas, who so ably chairs our Sub-Committee G. Like her, I wish to concentrate on the European Union institute for gender equality. Perhaps I, too, may say how much we value the work of Gordon Baker, our estimable amanuensis, who is so helpful in preparing the reports which are presented to your Lordships' House.
	We did, perhaps, start off sceptically in viewing the gender institute, but I for one became convinced of its aims and purpose. I think there is merit in collating information and data across the European Union on the different approaches to gender matters and, of course, in seeking to interpret what is gathered together. When I think of our own country and the pioneering Acts that a former Member of the House—Baroness Castle of Blackburn—brought about in the 1970s in regard to equal wages, I realise that we still have a long way to go. I am sure that is very true elsewhere in the European Union and it is worth trying to seek out the reasons for that and whether we might take actions in common together.
	Let us take, for instance, the question of access to promotion for women in jobs. There are glass ceilings throughout Europe; they are just set at different levels. Again, I think it would be worth exploring why that is the case. The same applies to access to training and education.
	Having a gender institute will give us an opportunity to spread best practice. By comparing and contrasting practices throughout the 25, soon to be 27, countries of the European Union, we can see where we do well and where others do better. We could then, perhaps, incorporate their ideas into our practice and our ideas into theirs. Indeed, I would describe it as a spur for action. Not only that—it would save duplication. Rather than 25 countries reinventing the wheel—or, indeed, inventing the wheel—we can compare and contrast and perhaps learn from each other.
	A third role could be in the commissioning of new studies and areas of investigation. I have recently taken up an interest in a matter which is the subject of an all-party group in these Houses of Parliament, led by a woman MP—that is, the construction industry. One of the items it is exploring is the role of women in the construction industry. We want to make sure that in such an important industry we use all the opportunities we can to enable people to come through to offer their skills for the benefit of each and every one of us, but I have no idea what the situation is like in the construction industry in other parts of the European Union.
	We are told that such an institute will not be policy-making, but what is the point if it does not provide the data and information to inform us better about these subjects and help to promote sensible and practical policies which might then be adopted by the European Union?
	Duplication is a theme of the debate and, in our committee, we wondered whether the work to which the gender institute is committed could be done by the United Nations or by other international bodies. Indeed, our report states, somewhat grudgingly, that yes, there may sometimes be a requirement for a specifically European focus which the UN and other international bodies could not be expected to give. I think that is absolutely true; the European Union is a different institution in many ways. To realise that, one has only to think of the single market and the freedom of workers to move across borders, which is important, and the sharing of childcare and opportunities for those families who do so to pursue work and jobs.
	Despite the differences of practice within it, the European Union is perhaps much more developed in its understanding and promotion of gender issues than other parts of the world. Therefore, it is worthy of a focus of its own. However, it is imperative that the European Union does not look inward as a result. I hope that it would be an exemplar for the rest of the world, which may later tread the same road.
	I return to the vexed question of duplication. Are there EU gender equality groups and institutions existing in Brussels which could do the same job; for instance, the EOC and its European Union equivalents? I think ultimately not. Were we to commission through them some of the tasks that we would require of a gender institute, their independence might then be undermined, which would be a bad thing.
	As the noble Lord, Lord Brown, pointed out, the duplication of the role of the fundamental rights agency is an issue: that is perhaps the nub of the debate today. I want to make clear the attitude, as I understand it, of Sub-Committee G. Paragraph 46 of our report states:
	"We conclude that the case for a separate European Institute for Gender Equality has not been demonstrated".
	It goes on to state that we should think of incorporating it in the European fundamental rights agency and so pass it on to Sub-Committee E. However, the noble Baroness, Lady Thomas, clarified that we believe that the institute is worth while. The question then becomes whether it is better placed under the FRA. That needs to be discussed.
	I agree with the Government that a separate agency is worth while—perhaps mine is a lone voice today. While I would encourage the Minister to explain why we appear to be doing something at European Union level which is different from what we are doing in our own country, I argue strongly that there is a coherence about the United Kingdom which would validate the idea of bringing such rights and ideas together under one agency, while the multitude of practice elsewhere in the European Union would suggest that a separate gender institute was preferable. I therefore agree with the Government's keeping the two agencies separate, but, as the noble Baroness, Lady Thomas, pointed out, it is imperative that they work closely together.
	While I welcome the institute, I too have serious concerns about its administration. We are entertaining the idea of there being 25—it may be 27 next year—representatives from the European Union on the management board. I know that there is to be an executive board and so on. That is over-larding things. It would be a mark of the European Union's maturity if we were able to sort out this business; it is time. The highest need should be the effectiveness and efficiency of such agencies operating on its behalf, and we should not overload them with the principle that there must be a seat for each individual country. Indeed, with some imaginative thinking we can make sure there is parity of treatment for all nations within the European Union by taking and looking at the representation on such management boards for a number of agencies together. That would be the logical way of ensuring we could make some sense of this.
	We insisted the budget must be adequate. I harbour concerns that there is some sleight of hand going on here. We are told this has to be budget-neutral, but if the gender institute is to be properly financed, it will take away money from other possible areas. It is no good covering that up by saying it will be budget-neutral. It is not. It spoils other opportunities.
	On the legal base, I understand people's concerns, but I am content that "Incentive Measures" is satisfied. Such an institute would be a spur to action by comparing and contrasting practice across the European Union. I think it is highly desirable. I also enter this caveat: I sometimes think that the legal base is very important, but we are talking about political realities. Sometimes we become semi-detached in our political commitment to the EU by hiding behind the cover of querying the legal base. Others carry on making progress in the EU, and we are still at the back arguing about that.
	I put my final concerns to the Minister, but they have already been broadly exorcised by the noble Baroness, Lady Thomas. Will the Minister update us on some of the things mentioned in the Government's reply to our own report? What happened in the social affairs committee on the common position? I am pleased to say that my former colleague Lissy Gröner has been promoting the common position in the European Parliament, and I am pleased to see her name attached to it. What is the budget position? Finally, what has been done and said in the April and May meetings of the working groups, which were trying to look at the vexed question I alluded to earlier of the representation on the management and advisory boards? I look forward to the Minister's reply.

Lord Norton of Louth: My Lords, I shall address my remarks principally to the report on the proposal for a fundamental rights agency, so ably introduced by the noble and learned Lord, Lord Brown of Eaton-under-Heywood. I speak as a member of Sub-Committee E of the EU Committee. In the time available, I wish to offer a general observation and address two specific aspects of the report.
	The general observation concerns the value of the reports emanating from the EU Committee. Their importance is not always apparent through having an observable impact on decision making. The real significance of the work of the committee lies in its capacity to contribute to debate and influence thinking. It is one of several bodies across the EU engaged in scrutiny, but it contributes with these bodies to the process of deliberation in Brussels. There is certainly more we can do. We shall shortly be debating the committee's report on public awareness of the scrutinising role of this House with regard to EU legislation. The scrutiny undertaken by the committee, however, contributes at a number of levels, informing as well as influencing.
	The report on the proposed fundamental rights agency illustrates the contribution the committee can make in terms of informing debate and engaging with others in that debate. There has been a sharing of views with a number of bodies as the discussion on the proposal has progressed. There has certainly been some movement in the direction favoured by the committee in the two areas on which I propose to focus.
	The first is that of the independence of the agency, which may come as no surprise in the light of the comments of the noble and learned Lord, Lord Brennan. If there is to be an agency, it is important that it is fit for purpose. There is no point in having one that duplicates work done by other bodies, or that exists primarily for cosmetic purposes. If the agency is to carry out its tasks effectively and thus add value in the protection of human rights, it is crucial that it is able to work independently of other EU bodies.
	This is recognised under Article 15 but, as noted in the report, a number of the proposal's provisions could compromise the agency's independence by allowing other bodies to interfere in its work. Under the initial proposal, the threat came principally from the Commission, which was given responsibility for adopting the agency's multi-annual framework. Among other things, the framework document was to be in line with the Commission's annual work programme.
	The report also noted that the presence of two members of the Commission on the agency's executive board effectively gave the Commission a veto in respect of the decisions made by the board. There was some indication from the Minister that the Council of Ministers was also moving in the direction of seeking a greater role through having to approve the agency's annual work programme.
	The committee took the view that the independence of the agency required some detachment from executive bodies and that it would be strengthened through greater involvement by the European Parliament. It recommended therefore that the Parliament should be consulted before the multi-annual framework was adopted and that the agency should be accountable to the Parliament. The committee also favoured greater involvement by the Parliament in the process by which members of the board, and the agency director, were appointed.
	On the management structure, the committee was concerned by the move in the direction of having the membership based on the principle of "one member state, one representative", which clearly gave rise to an unwieldy management board. Such an approach may have been appropriate, or at least not too unwieldy, when there were 15 member states, but is difficult to sustain with a membership of 25. However, I shall not dwell on that matter because the noble Lord, Lord Harrison, made that very point. The committee felt that it should have a membership of 11, drawing on representatives of the Council of Ministers, Commission, European Parliament, and, in this case, the Council of Europe.
	In the Government's response to the report, the Minister accepted the need for the agency to be as independent as possible, but argued the case for a strong link between the agency and national governments. Making the agency accountable to the European Parliament, she argued, would distance it from member states. She cited in support of her argument for a strong link with national governments the 2002 evaluation of the European Monitoring Centre on Racism and Xenophobia. She supported the Council approving the multi-annual framework on a proposal from the Commission and in consultation with the European Parliament. She argued against the principal recommendations in respect of the management board.
	Though the Minister may be right in contending that there is value in maintaining a link with member states—in other words, national governments—this should not be at the expense of the independence of the agency. The 2002 report to which she referred does not advocate the maintenance of a strong link between EU bodies and national governments and it is, of course, possible to engender support and trust among member states without investing them with power over the work of the agency.
	Since the Minister's written response, negotiations have continued and there has been some progress. There appears to be a consensus in favour of the European Parliament being consulted on the adoption of the multi-annual framework as well as having a greater role in the appointment of the director. The Minister also reports that there appears to be a consensus in favour of member states appointing "independent persons" instead of representatives. This is welcome but essentially protects what was in the proposal at the time that the committee reported.
	So some step in the right direction is welcome, though it would be helpful to have gone further. I think it important that the principle of the agency being able to carry out its work independently—which does not mean that the agency is not accountable—is not only recognised, which it is, but that it is given somewhat firmer institutional protection. On this, the committee is more in line with the thinking of the European Parliament than the Government. I do not quite understand the Minister's concerns. I understand the politics but not necessarily the substance of the argument. She may wish to take the opportunity today to provide a fuller case for the somewhat protective approach adopted by the Government.
	I turn to the second aspect, that of pre-legislative scrutiny. The noble and learned Lord, Lord Brown, has already touched on this. It is a subject on which I have form. The proposal fits well with the emphasis given to pre-legislative scrutiny in the United Kingdom. I was chairman of the Constitution Committee of your Lordships' House when it published its report on Parliament and the legislative process. The report stressed the importance of pre-legislative as well as post-legislative scrutiny. The Minister in the inquiry recognised that one might be able to draw on the work of the Joint Committee on Human Rights as an example of the approach that might be taken.
	On the face of it, the argument for some degree of pre-legislative scrutiny to be undertaken by the agency is compelling. However, in her response to the report the Minister stressed that the principal role of the agency should be in respect of the implementation of legislation, and that the agency would in any event be limited by the treaties on what it could do by way of scrutinising legislative proposals. There would also be the problem of overload if it were to have responsibility for checking all legislative proposals.
	There is a distinction to be drawn between having a formal capacity to intervene and report and being empowered to offer advice. That was recognised by the Minister when she appeared before the sub-committee. In her written response to the report, she emphasised that the Government were firmly of the view that the agency should not,
	"play a formal pre-legislative scrutiny role",
	but she was almost wholly silent on the issue of an informal or advisory role. I say "almost" wholly because of the words in parentheses at the end of footnote 7 in her response, where she noted that only the Commission could bring infraction proceedings, "although"—as she writes—
	"the Agency's reports could be used by the Commission to do so".
	That gets to the relevant distinction. There is scope for the agency to produce thematic reports. The agency would be in a position to offer informed and detached advice.
	I therefore welcome the progress that has been made in negotiations and the changes to Article 4(2) that now appear in the presidency draft of the regulation. Under this provision, the agency will be able to formulate opinions on specific thematic issues at the request of the European Parliament, the Commission, or the Council in relation to Commission legislative proposals under Article 250 of the treaty establishing the European Community. The limitations on the agency in scrutinising the legality of Community law or questioning whether a member state has failed to fulfil an obligation under community law remain. I therefore welcome the change that has been made. It enables the agency to fulfil a worthwhile role and avoids overlapping with the work of the Council of Europe. It is a step in the right direction.
	As the noble and learned Lord, Lord Brown, said, there are some who will question the need to have another body looking at human rights. We already have the highly valuable work undertaken by the Council of Europe and—the point that I have developed elsewhere—there is more that national parliaments can do. The new body is not necessary for the completion of the single market. Given that, if the agency is to win acceptance, it must add value, and be seen to add value, in protecting human rights. Both aspects of the report that I have emphasised are core to achieving that. I welcome the changes that have been made, although I would have preferred more changes in line with the recommendations proffered by the committee. I commend the committee on what has been achieved. I end as I began. The EU Committee and other committees of the House fulfil an important role in informing and influencing debate. Perhaps they provide a good example of what the proposed agency might aspire to.

Lord Brennan: My Lords, I congratulate the noble and learned Lord, Lord Brown of Eaton-under-Heywood, on his maiden speech. The clarity with which he presented the report shows that he will chair Sub-Committee E with the same distinction as that of his predecessors who listened to his speech.
	He has always been a person of perceptive judgment, and he said that he would not be surprised if there were some who found a trace of scepticism about this report. I would not want to disappoint him; he is right, in my case in particular. Why is that the case, when I come from a background, or at least from chambers, that are devoted to human rights principles? It is that very concern about human rights that teaches me in particular to be very careful about any new institutions that affect the public perception of human rights. They are of fundamental importance, and if we are to create agencies designed to safeguard them, those agencies must be given a clear remit, a proper scope for inquiry with staff and resources, and the ability to influence the public, whose human rights are being affected. I am afraid that I do not find this proposal for a fundamental rights agency meeting any of those requirements. That is why, while I accept the political reality that it will take place, I remain sceptical.
	I do not favour the creation of bodies as acts of symbolism, generally speaking. Even in Sub-Committee E, or the sub-committee that looked into gender equality, when intelligent, considered and detailed analysis continues, meeting after meeting, it can produce a state of affairs in which intellectual generosity adds to proposals an importance they do not really deserve. I shall ask the questions which led me to make that comment. What is the fundamental rights agency supposed to do? What are the fundamental rights it is assigned to safeguard? Would it work?
	First, what is the agency supposed to do? In our national consideration of human rights and an agency to safeguard them, we in Parliament have in the past few years debated at length whether we should have an agency, a commission or a commissioner, because we consider it not only such an important but such a complex question. There are three points we usually have in mind to illustrate that complexity. First, such a body or person should be able to review the observance of human rights in our society. Secondly, there should be a check on legislation with regard to its human rights compliance. Finally, perhaps, and very controversially, there should be a body that can investigate either serial breaches of human rights within the country, which are fortunately very rare, or egregious cases of particular breaches of human rights. We thought that that required really serious debate. We have not yet reached a national consensus on how to safeguard our human rights within the United Kingdom. But we have two means of seeking to do so within the law: one is the European convention, described in this report as the seminal instrument; secondly, we have our common law principles. The combination of the two usually gives reasonable protection.
	If that is the situation domestically, what happens when we turn to Europe with regard to the proposal? The agency will have a review function of some kind; it will not check legislation except under some fuzzy notion of quasi-pre-legislative scrutiny, and it certainly will not be able to introduce any investigative procedures of individual or serial cases of breaches of human rights. So we are left with the review function. What kind of review, designed to achieve what, is going to be effective at the European level? I cannot imagine that it is supposed that this agency will be a surrogate to investigate national compliance of human rights. Rather, it will be there to determine whether European legislation has been applied so as to comply with human rights. That is a limited function, but it should be clearly identified. At the moment, to the question of what the agency is supposed to do, the answer appears to be, "We will have to wait and see".
	Next, what are the fundamental rights that the agency is supposed to safeguard? We already have the European convention applied in every member of the Union. We already have the Council of Europe and its attempts to ensure compliance with the convention, with the added role of the Secretary-General to make inquiries as he thinks appropriate. So what else will this agency safeguard?
	To the best of my knowledge, the phrase "fundamental rights" does not figure in British jurisprudence. We talk about human rights but not fundamental rights in a legal sense. So I ask myself: what are they? They are convention rights and perhaps certain fundamental aspects of some international conventions, but I am not so sure that they are rights under the Charter of Fundamental Rights. It reproduces to a great extent the convention, but it also has a chapter, or chapters, dealing with economic and social rights, which we in our society have not yet accepted as being fundamental rights—certainly not by legislation and, in my view, not by general public debate. So in what way will this agency safeguard rights not yet recognised in our country or in many European countries?
	Only three or four years ago, my noble and learned friend Lord Hope, as chairman of the committee, followed by my noble and learned friend Lord Scott of Foscote, produced reports about this charter and its future status. In the sixth report in 2002–03, it was said by the Minister, my noble friend Lady Scotland, that it gave no new rights, no new jurisdiction and no new competence. The horizontal provisions which we insisted on being inserted in it were designed to ensure that no one in this country—or, so far as we were concerned, in Europe—could say that a breach of the charter would produce a remedy. That was our position and, so far as I am aware, it remains our position. In those circumstances, what are these rights that the agency will protect, above and beyond convention rights?
	The noble Baroness, Lady Thomas, must forgive me for not spending time on the gender equality institute, but I am sure that if I paid it adequate attention, the line of my critique would be much the same as the one I have just gone through. At the very least, I would conclude with the question: two agencies? Why not one? The report talks about a proliferation of useless agencies. I would not want to be so unkind as to use the word "useless" but certainly I would object to a proliferation of agencies in terms of competence, efficiency and cost.
	I shall close on the important issue of rights. If the agency starts to act in respect of rights not yet recognised by us as rights that give competence to courts and Parliament, how can we endow it to Europe and one of its agencies? My last question is: will it work? I propose to the Minister what I might call the "herbaceous" approach to this matter: take it slow, take it carefully and do not spend a lot of money on it until we find out where it might go—in the pragmatic Anglo-Saxon expectation that it might not get anywhere.
	I am making a quip about something serious, but if we are serious about protecting fundamental rights in the European context and an agency is required, let us have a proper agency and a proper remit, properly funded and properly supported by the peoples of Europe and not by those in Brussels. Your Lordships have listened to the words of neither a Europhobe nor a Europhile but, I hope, a Eurorealist.

Lord Lester of Herne Hill: My Lords, I have a special interest in the subject matter of these two excellent reports: first, as a member of Sub-Committee E, admirably chaired by the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and, secondly, given my responsibility on these Benches for women's rights, in succession to my noble friend Lady Thomas, who has made such a distinctive contribution in that area. I have learnt over the years that, as an advocate, one should never become too matey with judges and that one should not say nice things about them, because they always punish you in argument afterwards, bending over backwards in their desire to demonstrate their independence. However, I can in this debate say nice things about the noble and learned Lord, Lord Brown. He has always been a wise judge and a committed supporter of the effective legal protection of human rights through law. It is a great pleasure to serve under him in Sub-Committee E. As he showed this evening by the way in which he presented his summary, my goodness, he is a diplomat.
	I would join counsel for the prosecution, the noble Lord, Lord Brennan, in what he said, expect for in one thing. He displayed uncharacteristic narrow-mindedness about economic and social rights. I had thought that we had all reached the stage of understanding that economic and social rights are intertwined with civil and political rights. Indeed, the Joint Committee on Human Rights has never drawn the kind of distinction that he sought to draw. Having said that, I join the prosecution bench in this debate with enthusiasm.
	To give a bit of context, there are some 80,000 cases pending in the Strasbourg court. By 2010 it is estimated that there will be 250,000. The process by which its 46 judges are put forward by their Governments and elected by the parliamentary assembly is not consistent, fair or free from political patronage and interference. The UK's selection of the British judge is admirable, but among the member states that method is regrettably unique. There is a pressing need to reform the convention system. There is also a pressing need to bring together in a better way the two European systems and to reduce the grossly wasteful duplication in the legislation and judicial spheres with the European Parliament and its officials having to meet in three cities—Strasbourg, Luxembourg and Brussels—at huge inconvenience and waste of public money.
	It is in that context that we consider these proposals. As has been said, they are to create not one but two new institutions: the fundamental rights agency, which will have meagre resources and powers; and a separate institution for gender equality, which will also have meagre resources and powers. Instead of combining these institutions into a single body, as many have pointed out we British are doing in creating a single equality and human rights body, the EU Commission insists on there being two bodies based not in one city but in two cities: in Vienna and, I believe, in Brno or Warsaw. Instead of having a lean and efficient system of management in each of the bodies, every one of the 25 EU member states will nominate representatives on the top-heavy management board and, instead of there being a single management board, there will be two. It would have been sensible, before developing the proposals, to have considered ways of strengthening the existing human rights protection within the wider Council of Europe system, with which I began.
	For example, it would have been sensible to have given the European human rights commissioner the power to bring proceedings in his own right against defaulting states, or to intervene as a friend of the court in important pending cases. It would have been sensible to have put forward a treaty that would at last have enabled the European Union to accede to the European convention. It would have been sensible to have created some fact-finding mechanism to relieve the overburdened Strasbourg court. Instead, we are to have two top-heavy and weak EU human rights institutions side by side with the existing Council of Europe institutions, with concordats to reduce the risks of wasteful duplication and overlap.
	I am not the noble Lord, Lord Pearson of Rannoch. For 40 years I have been a committed supporter of the European protection of human rights and of European political integration. But I regard these proposals with dismay.
	The problems are analysed wisely and clearly in the two reports. The report on the gender equality institute asks the right questions: first, to be sure that any proposal to set up yet another European institute is soundly based; secondly, to know what in practical terms the proposed institute is supposed to do and whether it is necessary to set up a separate EU-funded institute to do it. The committee rightly concluded that a case for a separate institute for gender equality has not been demonstrated and recommended that further consideration be given to the alternative of incorporating the gender equality work envisaged for the institute into the activities of the proposed fundamental rights agency. It also strongly criticised the management structure proposed as "potentially unwieldy and inefficient". I respectfully agree.
	In the course of the inquiry, the Minister responsible gave evidence explaining that the institute was intended to carry out tasks not being done by existing institutions, such as,
	"questions of co-ordination; centralisation and dissemination; the raising of gender visibility; and the provision of tools for gender mainstreaming".
	The Minister, Meg Munn MP, told the committee that merging the activities of the institute with other bodies and agencies would, in the Government's view, run the risk that general equality would be sidelined, but she was unable to explain how it made sense to create a single integrated equality body in this country while balkanising in the European Union.
	Also in the course of the inquiry, the noble Lord, Lord Moser, who knows more about the gathering of statistics than anyone in the country, pointed out to one witness that Eurostat is probably the best of the international statistical agencies, and that he did not understand why the potential institute might even think that it could get better statistics than Eurostat. He received no coherent answer from any witness.
	The committee gave the fundamental rights agency a very cautious welcome, as the noble and learned Lord, Lord Brown, said. We addressed the vagueness and over-breadth of the remit of the agency; the absence of a strong investigative or legislative scrutiny role; the overlap with and possible undermining of the activities of the Council of Europe; and the agency's lack of independence. Our report points out that the current proposal does not appear to envisage a legislative scrutiny role for the agency, which is a most remarkable omission. We recommended that, when the final role of the agency is clear, the Government should report to Parliament on the question of its legal base. We concluded, diplomatically, that the agency might potentially play a useful role in enhancing observance of fundamental rights in the EU, but we share our witnesses' concern that failure to delineate the agency's tasks risks leading to wasteful duplication of the work of other bodies in the field. We emphasise the importance of making sure that the agency is more than just a postbox for collecting and sorting data.
	We pointed out that the very limited general role envisaged does not add much, if any, value to the existing mechanisms but serves to reinforce the views of the critics, who argue against the proliferation of useless agencies in the EU. The agency will not, apparently, even have the power to seek information from EU institutions and member states or to probe them should they delay in providing it. It does not have the right of initiative and, as the noble and learned Lord, Lord Brown, said, it would be anomalous not to give the agency the third pillar remit, given that proposals from the third pillar regularly engage fundamental rights, as he explained.
	As we say in paragraph 110, we are disappointed that the Government have not taken a consistent approach in this matter and, despite having championed integrated human rights protection in the UK, support the two separate proposals. We recommend that if there are to be two separate agencies, they should both be in Vienna. That I should live to see that day! It seems a most forlorn hope, given the ambitions of states to have institutions in their own capital cities.
	I conclude with the words of a great Danish writer that cold have been written for this debate. He said:
	"Nothing would have persuaded them"—
	the courtiers—
	"to admit that they could not see the clothes, for fear they would be thought stupid or unfit for their posts. So the Emperor set off under the high canopy, at the head of the great procession. It was a great success. All the people standing by and at the windows cheered and cried, 'Oh, how splendid are the Emperor's new clothes. What a magnificent train! How well the clothes fit!' No one dared to admit that he couldn't see anything, for who would want it to be known that he was either stupid or unfit for his post? None of the Emperor's clothes had ever met with such success.
	But among the crowds a little child suddenly gasped out, 'But he hasn't got anything on.' And the people began to whisper to one another what the child had said. 'He hasn't got anything on.' 'There's a little child saying he hasn't got anything on.' Till everyone was saying, 'But he hasn't got anything on.' The Emperor himself had the uncomfortable feeling that what they were whispering was only too true. 'But I will have to go through with the procession,' he said to himself. So he drew himself up and walked boldly on holding his head higher than before, and the courtiers held on to the train that wasn't there at all."
	In this debate, I feel young again.

Baroness Ashton of Upholland: My Lords, I begin by saying to the noble Lord, Lord Howard of Rising, that on the basis of that speech there is nothing unequal about us.
	I congratulate the noble and learned Lord, Lord Brown of Eaton-under-Heywood, on introducing the debate. I have looked forward to it because, as the noble and learned Lord knows, I spent a large amount of my time in work in the European Union on this issue. Indeed, I remember with great affection appearing before the noble and learned Lord's committee for what I thought was going to be 45 minutes which, I think, turned into two and a half hours—a very enjoyable two and a half hours. I am grateful to the noble and learned Lord for bringing this matter forward. Although he began by saying that human rights may have a poor press, I hope that your Lordships' House can agree that human rights are fundamental to the way in which we wish to live in our society and of which we should be extraordinarily proud in terms of the Human Rights Act.
	The noble Lord, Lord Howard of Rising, quite rightly indicated that the fundamental rights agency and the gender equality institute have been the subject of criticism. The difficulty in working with the European Parliament, the Council of Ministers and, indeed, with your Lordships' House is that criticisms vary. We have either gone too far, not far enough or we should have had two institutes or one. We need to consider carefully whether in both cases we have organisations worthy of funding and whether we give them power in the third pillar. There are as many views as there are Members of your Lordships' House. That is one of the interesting and enjoyable parts of trying to discover what the UK position should be.
	The noble Lord, Lord Lester, set me off on my Hans Christian Andersen days which, for me, will always be Danny Kaye. Noble Lords who remember the film will know that there is a great song in it which begins, "The king is in the altogether", which will be with me for the rest of this debate. I love the idea of the noble Lord, Lord Lester, being the little child in that context. I am not sure I quite agree with the analogy but, none the less, it is important. I understand the point he is trying to make with the fairy-tale that he so kindly gave us today.
	I want to start by saying a couple of things about how we work in the European Union in the context of this dossier. Noble Lords will know that this is an important dossier in that it is a unanimity dossier within the Council of Ministers. The European Parliament has played a very important role in deliberating on how the fundamental rights agency, which I know best in this context, should work. I pay tribute to Kinga Gál, a rapporteur in the LIBE Committee in the European Parliament, who sought to try to bring together disparate views in the European Parliament as well as to formulate sensible propositions. Noble Lords may know that the commissioner for justice and home affairs issues, Franco Frattini, has been very keen to see the fundamental rights agency as part of the balancing between the work we have to do in order to tackle issues of serious and organised crime and terrorism on the one hand, which lead to our need to share information and to think strategically across the 25 nations about how we deal with those issues, and to ensure that people's fundamental rights are not disturbed by having the agency. So, he would always describe it as part of the balancing act that he is trying to maintain on these issues.
	It is worth saying that the UK also has a balancing act to perform, which is to recognise issues where we simply do not have a view that is recognised by other nation states, either with the gender institute through qualified majority voting or through the fundamental rights agency, even where we might be quite isolated, although, because of the unanimity nature of the dossier, in a stronger position.
	In our work in the European Union we always have to consider very carefully which issues we feel it is right to press. So I agree with a huge amount of what was said and accept entirely some of the criticisms raised. I hope that in the comments I make noble Lords will perhaps understand better why we have not pushed particular issues which, from the point of view of either the committee or individuals, may seem to be fundamental and where on other issues we felt strongly that the UK should have a strong position.
	The noble and learned Lord, Lord Brown, raised the issue of the third pillar in the fundamental rights agency. I confirm to the noble Lord, Lord Howard of Rising, who quite rightly asked about the legal base on these issues, that there is now consensus among member states to use Article 308 of the treaty establishing the European Community as the legal base for the regulation that establishes the agency. There was a lot of deliberation about the legal base for the agency. When Commissioner Frattini was thinking about involving the European Parliament, he thought about using the legal base in Article 13(2), but discovered that would have affected the work that the agency could do. He therefore decided against it and rather considered how best the Parliament could be involved consultatively. The noble Lord, Lord Howard of Rising, was right to raise the fact that there was quite a lot of discussion about how best we might take that forward.
	We had to consider the legal basis for third pillar involvement. We were clear that the third pillar remit does not exist. We understand that the equivalent of Article 308 is absolutely clear that there is no basis for third pillar involvement. We are joined in our opposition to that by Germany, Slovakia, Ireland, Malta and Cyprus. Indeed, the working group met this week to consider those issues yet again.
	I want to make clear that just because we do not have the third pillar remit—and feel strongly that they should not be a third pillar remit because there is no legal basis for it—does not mean that we feel that police and judicial co-operation in criminal matters should have no scrutiny. Far from it. As noble Lords will know, that has been part of our dialogue with the Council of Europe. The Council of Europe has what I consider to be quite effective mechanisms to consider such matters. Of course, we always retain our national law.
	We are very clear and are joined by other nations in the view that there is no legal basis on which the agency can have a role in the third pillar. That remains a key part of our strategy that we shall pursue in the final discussions on the question of the role of the fundamental rights agency. In that sense, that is not a political decision.

Lord Lester of Herne Hill: My Lords, if the Prime Minister cannot have the third pillar, which is the one that deals with terrorism, crime, privacy and such matters and if the answer is that the Council of Europe or national governments can do that, that hole cannot be filled by the fundamental rights agency. Is that not an appalling gap in the system that the EU says that it needs to balance security, on the one hand and liberty, on the other?

Baroness Ashton of Upholland: No, my Lords, I do not believe that it is. I want to make progress, but I hope to address that question more fully. One big question in trying to work out what is the role of the fundamental human rights agency has been its relationship with nation states and the Council of Europe. Looking at the basis on which it is to be established, it does not have a third pillar remit as far as we and the other member states that I mentioned are concerned. That does not mean that those things are not covered in the work that we are doing. It does not mean that the agency does not have a role to play. It may not be the role that the noble Lord would want it to have; I accept that, but that does not mean that it does not have a role.
	That is the other balancing act to which I have been alluding. For some noble Lords, some member states and some Members of the European Parliament, such things are fundamental to how the agency can deliver and its purpose. For others, they are not. On balance, the UK Government's view is that there is a role for a fundamental rights agency. It is not the role that the noble Lord would want, but there is a role. Who knows, if an agency can prove its worth, it may do other things. One big debate in the LIBE Committee when I attended was about ensuring that the agency we set up is not only fit for purpose—something about which my noble friend Lord Brennan feels very strongly—but has the capacity to do what we want it to do. We have a lot of sympathy about what has been said about the management structure. We need to give it a sensible series of things to do so that it can achieve, be successful and develop. One thing that I have learnt about working in the European Union is that you have to start from one place and build to where you want to get to. You have to do it in stages; you cannot always get there all in one go, although I understand the frustration of the noble Lord that we cannot do that.
	The second point about which the noble and learned Lord, Lord Brown, in particular, was concerned was the charter and the relationship between that and what is proposed. He asked whether we have reference to the charter in the body of the regulation or in the recital. Noble Lords will know that the charter was to have been part 2 of the constitutional treaty, which would have given it some kind of legal force, subject to lots of official explanations that were going to be mentioned specifically in the treaty. As we do not have a treaty, of course, it is only a political declaration at this point. We do not believe that it is right to anticipate what might happen in any future treaty negotiations by implying that the charter has any status as a legal document, so we have made it very clear that we believe that it should be moved into the recitals to the regulation, and that that will be the appropriate place for it.
	I have to say that that view is not shared with our colleagues in the European Union, but we certainly feel very strongly about it across government. Indeed, this week, we considered the issue again at the appropriate committee in government. It was described as a showcase in my letter to the noble Lord, Lord Grenfell, at the beginning of our discussions on the fundamental rights agency, and that is what we believe the charter should be. We have been putting out those very clear and strong signals and messages about the third pillar and the appropriate place at which to refer to the charter throughout our discussions with colleagues across the European Union.
	It is also very clear, as I have said, that we need to be certain about the relationship between the fundamental rights agency and the Council of Europe. The noble and learned Lord, Lord Brown, referred to that. The noble Lord, Lord Howard of Rising, talked about being clear about the role of other organisations, and I agree that one of the most difficult and passionate debates has been how we ensure that the Council of Europe and the fundamental rights agency work effectively together but do not duplicate or overlap. There seems to be consensus now among member states on the need to ensure that a person appointed by the Council of Europe is on the management board and the executive board of the agency, and we hope that they will be able to work together to ensure that we do not have duplication, which, as I am sure the noble Lord, Lord Brennan, would agree would be a waste of resources and time.
	The noble Lord, Lord Norton of Louth, in particular asked about the management board and its independence. We have moved away from representatives on the board to independent persons, as the noble Lord knows.
	Negotiations are obviously still in progress, but it looks as if most member states are in favour of ensuring that the European Parliament will be consulted on the agency's multi-annual framework, and will have a greater role than originally anticipated in the appointment of the director.
	I have been so strong in saying that the fundamental rights agency should put its multi-annual framework report and, more to the point, its work programme before the Council of Ministers rather than the Commission because I do not want the agency to be sidelined or ignored, which would waste resources. The best way of avoiding that is if the agency presents what it is going to do to the Council of Ministers, which would have to take note of it and be aware of what it was doing. It would probably have a greater chance of being understood, recognised for the work that it could do and resourced effectively if the Council took a view about it. Although that is a different view from those of other member states, I have been arguing that position for some considerable time. If we are going to make this work, let us make it work properly and ensure that the Council of Ministers actually takes it seriously. There will be different views of how to achieve that, but that is my personal view about what we ought to be doing.
	I shall now talk about the management structures and, in so doing, speak about the gender institute as well, because there are differences in the way in which the two management boards are being set up. The fundamental rights agency has independent persons on the management board, and the gender institute has representatives of member states. The fundamental rights agency has two Commission members on the board, and the gender institute has three Commission members. There is also a wonderful thing called a scientific committee, which is for the fundamental rights agency and which I think formed the basis of a French proposal some time ago.
	We have tried to ensure that the management board and the structure of the fundamental rights agency and the gender institute do two things. One is to enable people to feel properly involved. I accept what the noble Baroness, Lady Thomas of Walliswood, said about the need to think carefully about 25 states rising to 27, and about how on earth everyone will be represented in reality. My preference is always for smaller management boards, but there is always the need, particularly when setting up anything new—this is pertinent not only to the European Union; it applies everywhere—for people to feel involved and, by their involvement, bound into the work of the organisation.
	We are a bit trapped in that whole dilemma. We want everyone to take this seriously. The recognition of taking it seriously is people being part of the management structure. I again hope that the management structure will change over time as people get used to it. I do not know of any formal plans—if I find them, I will certainly write to the noble Baroness, Lady Thomas—on how much further the UK Government can go in pushing to see how we can best work towards moving from 25 or 27 member states being represented on everything to a more sensible approach, if I can describe it as that.
	Again I pay tribute to Kinga Gál, who I know has spent a huge amount of time on this. At least there is some progress in thinking about how we involve people from member states, make sure that this organisation has the support that it needs from outside and is able to operate. The last thing that we want, by creating a management structure that is unwieldy, is to prevent people with great calibre from applying to become part of the agency, which would be a huge problem.
	We have said that we support setting up the European institute for gender equality. We hope that its purpose will be to raise the profile of gender equality across Europe and to get a much more coherent approach to obtaining information and gathering research. One of the roles for both agencies will be to make sure that we understand better what is happening across the European Union. We do not really have the ability to bring information together and do a compare-and-contrast exercise, which would be enormously helpful. It is very important that the gender equality institute is effective and efficient, and does not duplicate what is done in other parts of the European Union.
	The different views are interesting. My noble friend Lord Harrison took a different view from that taken by other noble Lords who talked about the need to merge the two bodies. My noble friend was keen to see them separate. We on the government Benches disagree with colleagues in your Lordships' House on that. I take and understand what my noble friend said. I agree with him that other countries have very different experiences. But the noble Lord, Lord Lester, and other noble Lords are right. In our country, we have moved towards bringing together those issues into the Commission for Equality and Human Rights. As I think was said to me in the committee, it looks rather odd that the Government are in a different place on this.
	In part, we are back to the pragmatism of the UK position. As noble Lords will know, I do not deal with this dossier in the European Union. But the rest of our European Union colleagues are very keen to see a separate gender institute. I suspect that that is in part exactly because of the point raised by my noble friend about their different experiences. The issue is subject to qualified majority voting, so the UK does not have the ability to alter this very much. While I cannot speak for my colleagues who have dealt with this, if I were the Minister responsible, my view would be that you have to decide on which issues you have a chance of being successful and on which issues you push. I was very clear with the committee that I also think that, when these two organisations are developed, there may well be a value in first making sure that they can operate and do their work and then looking to the future eventually to see whether we could bring them together.
	As I said earlier, the basis on which the gender institute is established is Article 13(2). That is on a different basis from Article 308, the fundamental rights agency, which has different things to do. If we should think about bringing them together, we would have to reopen all the earlier negotiations on the legal base, which is not something on which we would be successful. Equally, that could delay either of them coming into being, which I am not sure would be appropriate.
	We have argued for close collaboration and co-operation between the two bodies. The director of the institute for gender equality will attend the fundamental rights agency management board as an observer. We expect the officials to work closely. In answer to the question asked by the noble Baroness, Lady Thomas, about the future, it may be appropriate that these organisations become one. On whether they will be co-located, the noble Lord, Lord Lester, is right. Many countries wish to demonstrate—the noble Lord put it in a rather negative way, but it is a positive not a negative—that they are part of the European Union by wanting to host institutions of the European Union. I have no idea where the gender issue will end up. We certainly think that they ought to be collaborative, but who knows?
	I have tried to cover as many points as possible and I apologise for any that I have missed. As always, I shall write to noble Lords about anything that I think should have been added. I hope that noble Lords know that I am always happy to return to the committee, to whose members I pay tribute for their work, or to your Lordships' House to consider this further as we develop our work.
	In conclusion, as the noble Lord opposite pointed out, anti-discrimination issues are very important and there are many areas in which we are in agreement. We are merely arguing about the means to the end. Noble Lords know that we have tried to approach this in a pragmatic and practical way so as to end up with something that is worth having and worth putting resources into so that it can achieve what we seek for the future.

The Lord Bishop of Winchester: My Lords, it gives me great pleasure to bring this measure to the House. While the legal framework surrounding it is complex, its purpose is essentially quite simple. Your Lordships will see that the Ecclesiastical Committee was satisfied that it was expedient and it was able to set out its conclusions in a brief report. I am glad to say that I, too, can explain quite briefly the general object of the measure and how it seeks to achieve it, without, I trust, getting involved in the legal complexities to which I have referred.
	The important purpose of the measure is essentially to facilitate the appropriate community use of churches that continue in use for worship. As consecrated buildings, such churches are within the jurisdiction of the consistory court of the diocese, and it is for the chancellor, as the judge of that court, to decide whether to permit alterations to them. Alterations can extend to changes of use; and so, consistory courts have been able, in appropriate cases, to authorise parishes to grant licences to bodies that wish to use the church for various purposes, including, for example, day centres for the elderly, nursery schools and medical centres.
	Parishes that wish to set aside part of their church for alternative use of that kind can find that, if it is to be possible, the intended user group needs to have a lease on the part of the church in question rather than merely the licence that can currently be authorised by the consistory court. In most cases, that will be because a lease is required to enable the user group to secure financial support from one or more public funding bodies, this being a common requirement of a number of such bodies. The difficulty is that at present the Pastoral Measure 1983 takes such a form that a lease of part of a church can be granted only after the making of a partial redundancy scheme under that measure—a procedure that is not only long and complex but which can also send the wrong messages about the future of the church building in question. The word "redundancy", even if prefaced by the word "partial", sounds like redundancy.
	The aim of the measure now before your Lordships' House is accordingly to provide an alternative possibility, by amending the pastoral measure, so that the chancellor of the diocese is given a discretionary power to authorise the granting of a lease of part of a church. That procedure will sit alongside, but not replace, the existing power to authorise a licence—a possibility that will still accordingly be available when a lease is not required.
	However, the measure also recognises that the continued viability of the church building as a place of public worship must remain paramount when an alternative use for any part of the church is being considered. It therefore provides a number of safeguards for the continuing life of the congregation and the integrity of the church building. These include a requirement that, taken as a whole, the church building must continue to be used primarily as a place of worship; a requirement that the purpose and manner of any use of the church building under the lease must not be inconsistent with the use of the rest of the premises, primarily as a place of worship; and provisions preventing the tenant or lessee from obtaining any statutory security of tenure by virtue of the lease.
	Whether the requirements I have described will be met in a particular case, and the nature of any restrictions to be imposed through the lease to ensure that they are met, are matters the measure leaves as is best, to be decided by the Chancellor in the circumstances of that case. I understand, though, that the Ecclesiastical Judges Association will be providing guidance to its members on how best to approach these questions.
	I hope that this necessarily brief description of the purpose and effect of the measure is sufficient to demonstrate that it will widen the options available to parishes as they go about the sometimes challenging but always fascinating task of serving their local communities, while at the same time putting in checks and balances that respect the special status of a consecrated building continuing in use as a place of worship. I therefore commend the measure to your Lordships' House. I beg to move.
	Moved, That this House do direct that, in accordance with the Church of England Assembly (Powers) Act 1919, the Pastoral (Amendment) Measure be presented to Her Majesty for the Royal Assent—(The Lord Bishop of Winchester.)